US data

The market is waiting for important reports. Most of the reports will be on the workforce. These types of reports can create confusion in currency pair situations. So what can we expect? Japanese Household Spending Japan released the Japanese Household Spending results at 1:30 CET. The reading was not as expected and was much lower. The current reading was -1.7%, while it was expected to drop from -1.4 to 0.2%. This is the second time in a row that the value of all expenditures by consumers decreased. This means that, once again, Japanese consumers have spent significantly less. The current reading is taken as negative. Switzerland Unemployment Rate n.s.a. At 7:45 CET, Switzerland published a report on the number of unemployed as a percentage of the workforce. The Unemployment Rate was expected to remain at the level of the previous reading (2.0%). The current reading is slightly better than expected, Unemployment Rate n.s.a. is 1.9% On the other hand, Switzerland Unemployment Rate u.s.a. reached the level forecasted, ie 2.1%. Forecasts for this indicator were that the level would remain. EU Leaders Summit The EU Leaders Summit will take place at 12:30 CET. EU leaders usually meet in Brussels, in the Europa building. This time the meeting will be held in Prague. The third of the four scheduled meetings is to provide strategic guidelines on euro area economic policy. he leaders of the EU member states are set to discuss the Russia-Ukraine conflict, the rising costs of energy and its economic ramifications. Check out our video comment: Speeches Today we are waiting for speeches from different banks. The Bank of England Monetary Policy Committee (MPC) Member David Ramsden will speak at 12:25 CET. His public engagements are often used to drop subtle clues regarding future monetary policy. The next speech will be on the other side of the ocean. FOMC Member Williams will give a speech at 16:00 CET. U.S. Nonfarm Payrolls The forecast for new jobs in the non-agricultural sector is 250K, which is a very good indicator with an unemployment rate of 3.7%. In March, Nonfarm Payrolls it reached its highest level, then it began to decline. Another highest level after declines was recorded in July and they will start to decline again at the same time. Also at 14:30 CET, a report will also appear on the percentage of the total work force that is unemployed and actively seeking employment during the previous month. The expectations for this indicator are that its level from the previous reading will remain, i.e. the unemployment rate will be at the level of 3.7% Canada’s Employment Change and Unemployment Rate Canada at 14:30 CET publishes data on the number of people employed. The recent reading was negative and expectations for the current reading are positive. This number is expected to increase from -39.7K to 20.0K Read next: Terra's Worker Arrested! White House Comment On The OPEC Decision And Success of Deutsche Bank | FXMAG.COM The next report from Canada will be on the unemployment rate. The last reading was at 5.4% and it is projected to be at this level again this time. Summary 1:30 CET Japanese Household Spending (MoM) (Aug) 7:45 CET Switzerland Unemployment Rate n.s.a. (Sep) 12:00 CET EU Leaders Summit 12:25 CET MPC Member Ramsden Speaks 14:30 CET U.S. Nonfarm Payrolls (Sep) 14:30 CET U.S. Unemployment Rate (Sep) 14:30 CET Canada’s Employment Change (Sep) 14:30 CET Canada’s Unemployment Rate (Sep) 16:00 CET FOMC Member Williams Speaks Source: https://www.investing.com/economic-calendar/

Despite the headline rate of inflation being depressed in the US, core inflation continues to rise. We look for a 0.4% month-on-month increase in prices, nudging core inflation up to 6.5%. In the UK, next week's new jobs figure will be in focus, where we suspect the unemployment rate will notch a little higher In this article US: core inflation set to rise rapidly in the short term UK: jobs data in focus as BoE mulls huge November hike Eurozone: expect the energy crisis to worsen the trade deficit Source:Shutterstock US: core inflation set to rise rapidly in the short term The main US data report to watch next week will be consumer price inflation. The headline rate will be depressed by the lagged effects of the fall in gasoline prices, which is also likely to translate into lower airline fares to some extent. However, the core (ex food and energy) component is set to continue rising at a rapid pace. We look for a 0.4% MoM increase in prices, which would nudge the annual rate of core inflation up to 6.5% from 6.3% - remember it was down at “just” 5.9% in June and July. This unfavourable shift is primarily due to housing costs and recreation prices and should cement expectations for a fourth consecutive 75bp interest rate increase from the Federal Reserve on 2 November. However, the medium-term outlook for inflation is looking more encouraging. Inflation expectations continue to fall back – we will get an update from the NY Federal Reserve Bank’s survey and the University of Michigan consumer sentiment report next week, which publish both short and longer-term consumer expectations of inflation – while corporate price plans appear to be rapidly declining. In this regard, we will be closely watching the NFIB small business optimism report. Within it, there is a series for the proportion of businesses that are looking to raise their prices in the coming period. Last month it plunged and as the chart below shows, it has historically had a great relationship with predictive power for core inflation. If it falls further this would give us more confidence that the Fed will hike rates more modestly in December given this softening inflation backdrop in an environment of weakening economic activity. Also watch for retail sales. Auto sales rebounded and should provide a lift while gasoline will be less of a drag given a recent stabilisation in prices. We will also get the minutes of the Federal Reserve’s September FOMC meeting when they hiked rates 75bp. Corporate price plans rapidly declining   Source:  Macrobond, ING UK: jobs data in focus as BoE mulls huge November hike The UK unemployment rate fell last month. This was driven not by a corresponding increase in employment but by another surge in the number of people classed as inactive – that’s neither in work nor actively seeking it. This is overwhelmingly because of an increase in long-term sickness, and it’s hard to escape the conclusion that this is linked to pressure in the health service. This is likely to be the dominant trend in next week’s new jobs figures, even if we suspect the unemployment rate will notch a little higher again. For the time being, the Bank of England will view all of this through the lens of worker shortages. The Bank’s latest survey of firms has shown another increase in wage growth expectations and no material improvement in the number of companies finding it hard to get staff. We’re expecting a 100bp rate hike in November, though this will partly depend on how sterling trades between now and then. If the situation calms, we wouldn’t rule out a 75bp move, not least because the committee is heavily divided. Eurozone: expect the energy crisis to worsen the trade deficit The eurozone focuses on industrial performance next week with industrial production and trade in goods data due to be released. The trade data continues to be dominated by the energy crisis. A trade surplus of around €20bn per month turned into a deficit of around €40bn in July as energy prices soared. With August seeing new highs reached for natural gas prices, expect the trade deficit to have increased. In terms of production, shutdowns due to high energy costs are likely to have had a significant effect already. Key events in developed markets next week Source: Refinitiv, ING Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  

Summary:  The S&P 500 and Nasdaq 100 jumped by 1.5% on the Conference Board Consumer Confidence index rising to an 8-month high and 12-month inflation expectations sliding to the lowest since Sep 2021. Energy stocks led the gains as crude oil prices rose by nearly 3% on a larger-than-expected EIA crude oil inventories drawdown. USDJPY stabilized at 132.40 after the sharp decline the day before. What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) rallied 1.5% on consumer confidence survey US equities jumped on a bullish combination in the Conference Board Consumer Confidence survey with consumer confidence improving to an 8-month high and inflation expectations for the next 12 months falling to 6.7% in December from 7.1% in November. S&P 500 and Nasdaq 100 each climbed 1.5%. Nike (NKE:xnys), soaring 12.2% on an earnings beat and upbeat assessment of demand, was the best-performing stock within the S&P500 on Wednesday. All 11 sectors of the S&P500 gained, with energy, industrials, and financials leading. Energy stocks were boosted by a 2.9% rise in crude oil prices. APA (APA:xnys) gained 5.8%. Shares of FedEx climbed 3.4% after reporting a decline in earnings less than feared and plans to cut costs. Carnival rose by 4.7% after the cruise liner reported a smaller-than-expected loss. In extended-hour trading, Micron (MU:xnas) shed 2.1% following the chipmaker reporting FY23 Q1 earnings and Q2 revenue guidance weaker than expectations. US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) finished firmer with the 2-year outperforming Yields on the 2-year shed 4bps to 4.21% and the 10-year was 2bps richer to 3.66%. The 20-year auction went well with a decent demand from investors. Hong Kong’s Hang Seng (HIZ2) edged up modestly; China’s CSI300 (03188:xhkg) was flat Hong Kong stocks started the session firmer but fizzled out to finish the session only 0.3% higher in light volume. Textiles manufacturer Shenzhou (02313:xhkg), which supplies to Nike (NKE:xnys) surged 6.7% following Nike’s upbeat outlook guidance, making the stock the top gainer in the Hang Seng Index. Chinese catering stock Haidilao (06862:xhkg) gained 4%; white goods home appliances manufacturer Haier Smart Home (06690:xhkg) climbed 2.9%. In A-shares, CSI300 closed nearly unchanged from the day before. Consumption, lodging, tourism, catering, food and beverage, and Covid drugs gained. FX: bids for the dollar returned somewhat with USDJPY stabilized at 132.40 After sliding 3.7% on Tuesday after the BOJ decision, the USDJPY stabilized at around 143.40 for now. EURUSD edged down modestly to 1.0600. AUDUSD gained, rising to 0.6710. Crude oil (CLF3 & LCOG3) rallied 2.9% to USD78.50 on EIA inventory drawdown WTI crude jumped 2.9% to USD78.50 following a 5.9 million barrel drawdown on U.S. inventories reported by the EIA. The Biden administration’s plan to replenish the strategic petroleum reserve in February also helped the market sentiment. What to consider? Mixed U.S. data: weaker home sales, higher consumer confidence, lower inflation expectations Economic data were mixed. The 1-year-ahead inflation expectation in the Conference Board Consumer Confidence survey softened from 7.1% in November to 6.7% in December, the lowest since September 2021. Existing home sales shrank 7.7% M/M in November, the 10th consecutive month of decline. On the other hand, Headline consumer confidence as well as the present situation and expectations components rose in the Conference Board Consumer Confidence survey. The headline consumer confidence improved to 108.2, (vs consensus 101.0; Nov: 101.4), the highest level since April this year. China and Australia seek to improve the relationship between the two countries During a phone call to mark the 50th anniversary of the official diplomatic relationship between China and Australia, Chin’s President Xi told Australian Prime Minister Anthony Albanese that China would seek to “promote a sustainable development of the China-Australia comprehensive strategic partnership”. Meanwhile, Australian Foreign Minister Penny Wong told reporters that China and Australia agreed to continue high-level dialogue on issues including the removal of China’s trade sanctions on Australian goods. For our look ahead at markets this week – Read/listen to our Saxo Spotlight. For a global look at markets – tune into our Podcast. Source: Market Insights Today: U.S. stocks rallied on stronger consumer confidence and lower inflation expectations – 22 December 2022 | Saxo Group (home.saxo)

Summary:  Risk sentiment bounced yesterday after December US Consumer Confidence came in far stronger than expected, jumping to an eight-month high. And yet, US Treasury yields fell gently all along the curve yesterday, in part as the same US confidence survey showed inflation expectations dropping more quickly than expected and on a strong 20-year US treasury auction. In FX, the Aussie has rebounded sharply on hopes for stimulus measures in China and a friendly diplomatic tone in recent talks between Australian and Chinese leaders.   Note: This is the final Saxo Market Quick Take until Monday January 2, 2023. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures rallied 1.5% yesterday closing above the 50-day moving average as positive earnings from Nike helped lift sentiment yesterday and provided a positive assessment of the US consumer. Equity trading will slowly enter hibernation as the holiday period approaches so expect little price action today and tomorrow. Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg) rallied on stimulus rhetoric and talk of shortening quarantine The Hang Seng Index rallied 2.4% and CSI 300 climbed 0.4% as of writing, after China’s State Council, the People’s Bank of China, and the China Securities Regulatory Commission separately released meeting readout or statements to pledge to implement the decisions from the recent Central Economic Work Conference to boost the economy, support the property sector, and the internet platform companies. Adding to the risk-on sentiment is market chatter about the shortening of quarantine to three days. Mega-cap China internet stocks surged 3% to 6%. Leading retail and catering stocks jumped by 2% to 11%. FX: choppy markets as USD starts day on a weak footing Some gentle back and forth in FX yesterday as the USD put on a show of rallying, while most of the action has been in the crosses and the greenback has eased back lower after a strong session for risk sentiment yesterday and lower US treasury yields helping USDJPY back lower after its traumatic sell-off and broad JPY rally on Tuesday’s surprise tweak of BoJ policy. The biggest mover to the upside has been the Aussie, which is enjoying the more friendly diplomatic tone with China and has suddenly rallied in the crosses, especially in AUDNZD, on more rhetoric overnight from China on its intent to boost growth. Crude oil (CLG3 & LCOG3) rally extends on US inventory data Crude oil closed at the highest level since December 5 after the US DoE inventory reports showed a nearly 6M barrel draw on crude oil stocks, while gasoline inventory levels rose nearly 2.5M barrels, a half million more than expected, and distillates inventories fell –242k vs. A rise of 1.5M barrels expected. Gasoline and distillate stocks have been generally building of late, but the latter remains slightly below the inventory range of the past 5 years. Gold (XAUUSD) and silver (XAGUSD) remain near recent highs ... after surging in the wake of the Bank of Japan policy tweak on Tuesday and despite yields easing lower yesterday in the US. BOth 2020 and 2021 saw gold ending the year on a strong note and then sharp follow-on rallies in January were quickly reversed. Yields on US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) remained subdued despite surge in US Consumer Confidence US Treasury yields eased lower all along the curve yesterday despite a large and unexpected surge in US Consumer Confidence as that same survey’s drop in inflation expectations may have received more attention. Later in the day, a strong US 20-year auction, where bidding metrics were the firmest since this spring. End-of-year portfolio rebalancing may obscure the next bigger move for treasuries until we roll into the New Year. What is going on? Mixed U.S. data: weaker home sales, higher consumer confidence, lower inflation expectations Economic data were mixed. The 1-year-ahead inflation expectation in the Conference Board Consumer Confidence survey softened from 7.1% in November to 6.7% in December, the lowest since September of 2021. On the other hand, Headline consumer confidence as well as the present situation and expectations components rose in the Conference Board Consumer Confidence survey. The headline consumer confidence improved to 108.2, (vs consensus 101.0; Nov: 101.4), the highest level since April this year. Elsewhere, the annualized rate of existing home sales fell -7.7% in November, the 10th consecutive month of declines as the historic surge in US mortgage rates this year continues to pressure the US housing market. Micron shares down 2% as glut in memory chips continues The US memory chip manufacturer delivered last night a positive surprise on FY23 Q1 (ending 1 December) adjusted EPS at $0.04 vs est. $-0.88 and announced a 10% headcount reduction to reduce costs. The real negative surprise was the Q2 revenue outlook of $3.6-4bn vs est. $3.9bn and the Q2 adjusted gross margin of 6-11% vs est. 17.8% suggesting significant pricing headwinds compared to market expectations. Micron is also drastically reducing its 2024 capex plans. China and Australia seek to improve the relationship between the two countries During a phone call to mark the 50th anniversary of the official diplomatic relationship between China and Australia, China’s President Xi told Australian Prime Minister Anthony Albanese that China would seek to “promote a sustainable development of the China-Australia comprehensive strategic partnership”. Meanwhile, Australian Foreign Minister Penny Wong told reporters that China and Australia agreed to continue high-level dialogue on issues including the removal of China’s trade sanctions on Australian goods. What are we watching next? Japan’s November Inflation data up tonight After an historic move in the JPY this week, the market will be watching the latest batch of Japan’s CPI data, which has surged to multi-decade highs recently and is expected in at +3.9% YoY for the headline and +2.8% YoY ex Fresh Food and Energy. The rally in the JPY by some 12% from its lows of two months ago will help moderate the relative inflation risks for Japan. US PCE inflation data for November out tomorrow This is arguably the last interesting macro data point out of the US until the first week of the New Year. The PCE data is expected to show that core inflation will drop sharply to 4.6% YoY vs. 5.0% in October, while the headline is expected in at 5.5% versus 6.0% in October. Hotter than expected inflation readings will be an interesting test for markets in coming months as the market has a strong view that the Fed is poised to halt rate hikes as soon as Q2 of next year and will be cutting by year end, despite the Fed “dot plot” projections suggesting the Fed will have a policy rate at the end of next year of above 5% (versus 4.25%-4.50% now). Earnings to watch The earnings calendar is winding down for the year, with payroll and HR-services company Paychex reporting today before the market opens and struggling US used car seller and servicer CarMax, which is trading near its lows for the year, likewise reports before the market open today. Today: Paychex, CarMax Friday: Nitori Economic calendar highlights for today (times GMT) 1100 – Turkey Rate Announcement 1330 – US Weekly Initial Jobless Claims 1530 – US Weekly Natural Gas Storage Change 2330 – Japan Nov. CPI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:   Source: Financial Markets Today: Quick Take – December 22, 2022 | Saxo Group (home.saxo)

US stocks settled lower in a volatile session as traders digested a cooling wage/ robust job growth report and SVB contagion risks. This was supposed to be an easy Friday with one massive jobs report, but SVB, a large bank with exposure across a range of sectors failed and triggered distress for several other smaller banks.  At the end of the day, traders are seeing this cooling/hot payroll report as confirmation that Fed policy is restrictive and that the their tightening work is almost done.  If we didn’t have SVB’s failure and contagion risk the case for a half-point rate hike would be valid. The focus will fall on SVB contagion risks and Tuesday’s inflation report.  As long as we don’t see a scorching hot inflation report, the Fed should continue with its quarter rate point hiking pace.   US data The US economy added 311, 000 jobs in February, more than both the consensus estimate of 225,000 and the whisper number of 250,000.  The NFP report had a strong headline beat, but the rest of the report supported the idea that the labor market is ready to cool.  Wage pressures came in much softer than forecasts and the unemployment rate rose from 3.4% to 3.6%.  Fed rate hike odds went on a rollercoaster ride post NFP as traders now have the March 22nd meeting as a coin flip between a 25bp rise or half-point increase and are also pricing in a rate cut by the end of the year.  The peak is in place and it seems traders got a preview about how this tightening cycle will start to drag down economic growth.  SVB SVB Financial Capital’s demise is bad news for many small tech companies as they were a go-to lender in silicon valley.  After Venture Capitalists decided to pull their money, SVB ended up losing ~$2 billion from selling securities as they rushed to secure funds, which is what triggered this bank run.     Startups and debt refinancing are some of the biggest financial risks that traders are analyzing, but this pressure on small banks appears it should remain contained and not weigh on the big banks. The KBW bank index had its worst drop since early in the pandemic and the contagion fears dragged down Comerica, Keycorp, and US Bancorp.  Signature Bank Investors are skeptical to hold anything crypto related in this market environment.  Banks vulnerable to financial instability risk and crypto exposure are easy targets and that has some traders eyeing Signature Bank. There are not a lot of publicly trade banks with significant crypto exposure, so the ones that have some are seeing selling pressure.  Oil Crude prices are rallying after a mixed jobs report sent the dollar lower as optimism grew that the Fed won’t have to be as aggressive with the end of its rate hiking campaign. Oil is quietly rallying as parts of Wall Street enter panic mode following small banking contagion risks.  It appears that parts of the economy are breaking and that is good news for bets that the Fed won’t have to accelerate their tightening pace.   Gold Gold is surging as Fed rate hike bets get scaled down and as SVB contagion risks trigger some safe-haven buying. The bond market is now starting to price in rate cuts by the end of the year and that is triggering a major collapse with yields.  The two-year yield posted its biggest two day decline since 2008.  Gold is becoming everyone’s favorite trade again and that could continue as liquidity risk concerns won’t be quickly answered for that corner on Wall Street.    Bitcoin All the headlines just turned bearish for Bitcoin.  The list of bearish crypto drivers are plentiful: Fallout from SVB as many crypto companies depend on small banks, mining might be harder if the White House pushes through a new 30% tax, NY crypto crackdown now covers KuCoin and after Huobi token’s flash crash.  Bitcoin was in a comfortable trading range and that just broke, which has many investors nervous that we could see a retest of the October lows. Bitcoin fell below the $20,000 level and has many traders nervous over what might happen over the weekend.  Crypto volatility appears to be back as Bitcoin’s range has been breached.  The $18,400 level is key support, but if that breaks momentum selling could look to target a retest of the October lows.   This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.  

FX Daily: Markets steady ahead of final push on the debt deal After a long weekend in many parts of the world, FX markets are returning to mull progress on a US debt ceiling deal. This now has to pass the committee stage in the House and will probably go to a House vote tomorrow. Progress on the deal will allow investors to focus on sticky US inflation – likely seeing the dollar hold onto recent gains.   USD: Progress on debt deal allows markets to focus on another Fed hike After long weekends in many parts of the world, FX markets are returning to some progress on the US debt ceiling. President Joe Biden and House Speaker Kevin McCarthy have reached a two-year deal. That deal will be assessed by the House Rules Committee today and, if approved, will likely go to a vote in the House tomorrow. Both Democrat and Republican leaders feel they have the votes to get the deal through Congress – although at times like these, there may be a few holdout politicians who like their day in the sun.   Progress on the debt deal has seen some declines in yields for US Treasury Bills maturing in June, although it has had little impact on FX markets. We said last week that FX markets had already been trading in a de-stressed fashion on the assumption a deal would go through. Assuming there are no hiccups in the deal's passage, FX markets can return to the most pressing issue of sticky inflation and what central bankers plan to do about it.   Last Friday's US data set made the firm case for one additional 25bp Fed hike – now fully priced by the time of the 26 July meeting. Money markets price a 63% chance of that hike coming earlier at the 14 June meeting – a meeting which will likely see the Fed have to raise its inflation forecasts. The default view, therefore, seems to be that the dollar can hold its recent gains at least into that June meeting. That is unless US price and activity data start to fall away sharply.   On that front, this week sees US JOLTS job opening data (Wed), ADP (Thurs.), and the May NFP (Friday). Barring any major downside miss in these releases, it looks like the market will support another 25bp hike from the Fed, continued inversion in the US yield curve, and a strong/stronger dollar.   DXY looks comfortable above 104.00 and could extend recent gains to 104.65 or even 105.30 this week.    

The EUR/USD pair sharply fell on Friday. Volatility was high, but the day can be roughly divided into two parts: before Nonfarm Payrolls (NFP) and after. Prior to the release of US data, the market was relatively flat. This is not surprising as there were no significant events or reports in the first half of the day.     After the release of the NFP data, the pair sharply fell, which was logical, as the data exceeded expectations. Moreover, it exceeded forecasts twice as much, which speaks for itself: the US labor market is in excellent condition, despite the high interest rates set by the Federal Reserve.     The increase in the unemployment rate by 0.3% was no longer of particular importance. Trading signals were not the best due to the morning flat. During the European trading session, the pair rebounded from the level of 1.0762 thrice and failed to move up even by 10 pips each time.     After the release of the NFP data, the pair initially started to decline, then returned to the level of 1.0762, and then it fell again. Since the NFP data was very strong, it was reasonable to consider only trades that anticipated the dollar's growth, in other words, selling opportunities.     The last sell signal resulted in a profit of about 40 pips. The morning trade (which was only one) could have been closed at breakeven due to the same flat market conditions.   The COT report for May 30 was delivered on Friday. Over the past nine months, COT data has been in line with developments in the market. The net position (second indicator on the chart) has been on the rise since September 2022. The euro started to show strength approximately at the same time. Currently, the net non-commercial position is bullish and keeps growing further. Likewise, the euro is bullish.   Notably, we may assume by the extremely bullish net position that the uptrend may soon stop. The first indicator shows that, and the red and green lines are far away from each other, which is usually a sign that the end of the trend might be nearing.   The euro attempted to go down several months ago, but those were just minor pullbacks. In the reporting week, long positions of non-commercial traders decreased by 8,200 and short positions fell by 200. The net position dropped by 8,000. The number of long positions exceeds that of short ones by 165,000, a rather big gap. A correction or a new downtrend has started. So, it is clear that the pair will be bearish even without COT reports.     In the 1-hour time frame, the pair surpassed the descending trendline again, clearly indicating its intention to form an uptrend. This should be a correction, and afterwards the downward movement should resume. From a fundamental perspective, there are still no grounds for the pair to rise, but technically it may correct this week.   However, the price is below the Ichimoku indicator lines again, so it may fall again. On June 5, trading levels are seen at 1.0537, 1.0581, 1.0658-1.0669, 1.0762, 1.0806, 1.0868, 1.0943, 1.1092, as well as the Senkou Span B line (1.0785) and the Kijun-sen line (1.0708). Ichimoku indicator lines can move intraday, which should be taken into account when determining trading signals. There are also support and resistance although no signals are made near these levels. Signals could be made when the price either breaks or bounces from these extreme levels. Do not forget to place Stop Loss at the breakeven point when the price goes by 15 pips in the right direction.   In case of a false breakout, it could save you from possible losses. Today, both the EU and the US will release their respective Services PMIs for May. You should pay attention to the US ISM services, since it is more important than "ordinary" business activity indexes. Indicators on charts: Resistance/support - thick red lines, near which the trend may stop. They do not make trading signals. Kijun-sen and Senkou Span B are the Ichimoku indicator lines moved to the hourly timeframe from the 4-hour timeframe.   They are also strong lines. Extreme levels are thin red lines, from which the price used to bounce earlier. They can produce trading signals. Yellow lines are trend lines, trend channels, and other technical patterns. Indicator 1 on the COT chart is the size of the net position of each trader category. Indicator 2 on the COT chart is the size of the net position for the Non-commercial group of traders.    

EUR: Don't look at the eurozone, look at the US We have published the ECB Cheat Sheet ahead of Thursday’s policy announcement in Frankfurt. A 25bp outcome has already been priced in by markets and looks like a done deal based on recent ECB communication, so the focus will be on the commitment to future tightening. Arguably, the grounds to retain a hawkish stance have become scarcer since the softening of the inflation and growth story in the eurozone, and the chances of a hawkish surprise have therefore decreased.   From an FX perspective, we do not see the ECB risk event this week as big as anything happening in the US. The recent EUR/USD decline was caused by a deterioration in the EUR-USD short-term rate differential, but that was overwhelmingly driven by a jump in the more volatile USD rates while EUR rates remained stable. US CPI numbers and the Fed decisions are what will matter the most for EUR/USD this week, and more generally, US data and the Fed’s future path are what will primarily determine the direction of EUR/USD moving ahead.   If we are right about a 0.4% core US CPI print today, there may be some moderate upside risks for EUR/USD, should investors see that as enough to price out the remaining 23% implied probability of a hike tomorrow. But we are not convinced of that and some cautious trading ahead of key central bank risk events may keep the pair capped.

EUR: No easy task for Lagarde today It’s European Central Bank decision day, and our call for a 25bp rate hike is fully in line with consensus and market expectations. In our ECB Cheat Sheet, we outline four different scenarios along with implications for EUR rates and EUR/USD: in our base case, today’s rate increase will be paired with an attempt to convey a hawkish tone and leave the door open for more tightening ahead. Markets are almost fully pricing in another hike in July, and the focus will primarily be on President Christine Lagarde’s press conference and whether she will offer hints that the Governing Council is leaning in favour of a July move. Staff projections will also be released but may not gather too much attention or drive much of the market reaction.   Given the market's strong conviction about another 25bp hike in July (or September at the latest), the bar for a hawkish surprise is probably set quite high today. The ECB may need to signal several more hikes to trigger a significant jump in the euro and that does not look very likely considering the recent signs of decelerating inflation and deteriorating growth outlook. In other words, there is still the interest for the ECB to sound hawkish today, but we suspect that might not be enough to send the euro higher, and we see some moderate downside risks for EUR/USD today. We could see EUR/USD drop back to the 1.0750 handle today, although developments on the US data side will continue to drive the large majority of trends in the pair moving ahead, with ECB policy playing second fiddle, in our view.

EUR: Hawkish ECB and better risk environment helps the euro The trade-weighted euro pushed up around 0.2/0.3% yesterday on the hawkish ECB, but the better global growth environment and softer dollar generated a 1% rally in EUR/USD. As our readers hopefully know by now, we are bullish on EUR/USD in the second half, but we are not sure which month exactly the bull trend would take off. Could it be June? The hawkish ECB – especially the upward revision to the 2025 CPI forecast – adds weight to our core house view that the central bank will say hawkish for longer and cut rates later than the Fed. At the same time, it looks like investors are gearing up for another expression of faith in Chinese growth prospects. Expectations are now growing that some fiscal support measures can be announced over the coming weeks to back up the recent monetary easing. This week's important turn-around in USD/CNH looks like an encouraging sign for the pro-cyclical EUR/USD. For EUR/USD today, let us see whether the US data and Fed speakers make much of an impression. In addition, we have four ECB speakers from the more hawkish end of the spectrum. We prefer to back the bullish momentum here and can see EUR/USD pushing on to the 1.1000/1030 region today. Chris Turner   In Norway, Norges Bank (NB) reported the results of a regional survey yesterday: the main takeaway was that price pressures continue to grow. This will ultimately help the central bank build its case for pushing rates beyond 3.50%, even though a much more important input to the NB decision-making process is NOK weakness. The next policy meeting is on Thursday when rates are expected to be raised by 25bp to 3.50%, although at this stage we cannot exclude a surprise 50bp hike.   

GBP/USD accelerates on Friday. Yesterday, there were no significant events lined up in the UK, but the US data turned out to be slightly weaker than expected. Reports on unemployment claims and industrial production were worse than traders' expectations, but there were also reports that exceeded forecasts (retail sales).   Therefore, if the US data were not in favor of the dollar, it was not to the extent that it would fall by 140 pips in a day. On the other hand, the European Central Bank held its meeting, the results of which had no relation to the pound. In addition, the market had already expected its results a couple of weeks ago, if not more. And despite all that the pound still rallied, even more strongly than the euro. Thus, the pound extends its illogical growth. The first sell signal near the 1.2659 level turned out to be false. The price could not move in the right direction even by 20 pips, so the short position closed with a small loss at the beginning of the US trading session when a buy signal appeared. Later, the pair confidently rose to the 1.2762 level and surpassed it. No sell signals were formed for the rest of the day, so traders could close their long positions anywhere.     The profit from this trade amounted to at least 100 pips. COT report: According to the latest report, non-commercial traders closed 5,200 long positions and 4,500 short ones. The net position dropped by 700 but remained bullish. Over the past 9-10 months, the net position has been on the rise despite bearish sentiment. In fact, sentiment is now bullish, but it is a pure formality. The pound is bullish against the greenback in the medium term, but there have been hardly any reasons for that. We assume that a prolonged bear run may soon begin even though COT reports suggest a bullish continuation. However, we can hardly explain why the uptrend should go on.     The pound has gained about 2,300 pips. Therefore, a bearish correction is now needed. Otherwise, a bullish continuation would make no sense even despite the lack of support from fundamental factors. Overall, non-commercial traders hold 52,500 sell positions and 65,000 long ones. We do not see the pair extending growth in the long term. 1H chart of GBP/USD In the 1-hour chart, maintains a bullish bias. The ascending trend line serves as a buy signal but I believe that further growth of the British currency is groundless. The pound sterling has been climbing for too long and downward corrections are short-lived. Judging by the technical indicators, we have an uptrend.   Yet, it is hard to find the reasons which may push it higher. Nevertheless, the market has no logical reason to buy at the moment. On June 16, trading levels are seen at 1.2349, 1.2429-1.2445, 1.2520, 1.2589, 1.2666, 1.2762, 1.2863, 1.2981-1.2987. The Senkou Span B line (1.2472) and the Kijun-sen line (1.2638) may also generate signals when the price either breaks or bounces off them. A Stop Loss should be placed at the breakeven point when the price goes 20 pips in the right direction. Ichimoku indicator lines can move intraday, which should be taken into account when determining trading signals. There are also support and resistance which can be used for locking in profits. On Friday, there are no important events lined up in the UK, while the US will only release the University of Michigan Consumer Sentiment Index. Since there are no significant events today, we might witness a slight bearish correction. However, the pound can still rise since it doesn't need any logical reason behind it.

FX Daily: Dollar trapped between inverted curves and rallying equities There has been little follow-through from the dollar selling we saw late last week. Currently, global markets present a curious picture of steeply inverting yield curves – which occasionally forewarn recession – but bid equity markets. Which market has it right? We tend to think the dollar will come lower in the second half, but again timing is everything.   USD: Dollar trapped in the middle of inverted curves and risk rally FX markets are relatively quiet following yesterday's public holiday in the US. Risk assets are marginally softer after Chinese authorities only cut the 5-year Loan Prime Rate by 10bps – disappointing those looking for more aggressive support from lower mortgage rates to China's property sector. USD/CNH pushing back up to 7.18 has kept USD/Asia bid and provides a mildly bullish undercurrent to the dollar as the European session gets underway. Softening the lens a little we see the dollar trapped between two stories and reflected in its 2% gains against the yen and 2% losses against sterling and commodity currencies over the last month. Those two stories are: i) steeply inverting yield curves as central banks try to squeeze inflation out of economies and ii) rallying equities on the view that recessions will be mild (perhaps because of low unemployment). Our big picture call here is that US disinflation comes through in the third quarter, bearish US yield curve inversion switches to bullish steepening, and the dollar falls more broadly. But we are not there yet. Back to the short term, there is only second-tier US data today in the form of housing starts and we have the Fed's James Bullard speaking at 1230CET today. He is one of the most hawkish Fed governors, but not an FOMC voter this year. Presumably, he may shed some light on why the Fed could hike by another 50bp this year (consistent with the latest Dot Plots), but that may not move the dollar needle much. DXY is to trade well within a 102.00-103.00 range and expect USD/JPY to continue nudging higher. It increasingly looks as though Japanese authorities will be called into FX intervention again near the 145 level.

Wall Street awaits a week full of hawkish Fed speak Global risk aversion settles in as PBOC stimulus disappoints US-China relations improve but no significant breakthroughs are expected   US stocks are starting on softer footing on disappointment from the PBOC’s stimulus efforts for the struggling property market and on expectations Fed Chair Powell will defend the FOMC’s dot plots. ​ Improving sentiment with US-China relations was somewhat faded as the yuan was fixed at the lowest levels since November. ​ China has a habit of playing nice when they let the yuan weaken. ​ Secretary of State Blinken’s trip was constructive enough that he was able to meet with Chinese President Xi Jinping. ​ This was the first visit by a US Secretary of State to China since 2018, which was initially going to happen earlier in February, but was called off due to a suspected spy balloon. Any momentum from Blinken’s trip was expected to be short-lived as China’s not budging on Taiwan, and they will continue to trade with Russia, despite pressures from Washington DC. ​   US data Housing data for the month of May showed the best rebound since 2016 as inventories for homes remain at low levels. ​ Housing starts surged 21.7%, much higher than the expected 0.1% dip, and huge improvement from the revised -2.9% prior reading. ​ Building permits rose from -1.4% to 5.2%. ​ Demand for houses appears to be strong and that should help that part of the economy get out of a recession. ​ The problem for the Fed is that the inflation fight was so used to a weakening housing market but that appears to be bottoming out. ​   S&P 500 Index  

EUR: European rates are going higher EUR/USD looks to be benefiting from some portfolio re-allocation since yesterday's rise was not backed up by any noticeable change in short-dated EUR:USD rate differentials. Support levels roughly held this week and the bias looks to be to 1.1010/30 above which the highs near 1.1100 beckon. Any softer US data should certainly help here. On the eurozone side, look out for June consumer confidence and another batch of European Central Bank speakers. The market looks comfortable in pricing two further 25bp hikes by year-end. Elsewhere, the Swiss National Bank (SNB) meets to set rates today. The majority of economists are going for a 25bp hike, but a sizable minority look for 50bp - primarily since the SNB only meets four times per year. Recent SNB rhetoric has remained hawkish despite core inflation dropping below 2% year-on-year. Last September, we estimated that the SNB wanted to engineer 5% nominal appreciation per year to keep the real CHF stable. That is roughly what has happened. Where we were wrong is that it has come more through USD/CHF than EUR/CHF. Expect a hawkish SNB today to keep USD/CHF offered - targeting May's 0.8820  low.

Rates Spark: Different causes, same effect The US and European economic trajectories are diverging. Yields have followed, albeit more modestly. In both cases the result is ever flatter curves, helped by seasonal factors.   Yield differentials widen, but all curves flatten It is hard to completely dismiss technical factors when finding an explanation for the continued flattening of yield curves heading into the summer market lull. Expectations of calmer market conditions in the summer don’t always come true but worse liquidity make investors wary of keeping positions that carry negatively, for fear of being unable to exit them should markets move against them. We think this is an important factor adding a tailwind to the curve flattening. We think steepeners have been a popular trade in recent months as investors foresee the end of central banks’ hiking cycles. The problem is, these are costly to hold. For instance, a euro swap 2s10s steepener costs over 6bp per quarter in carry. Its US dollar equivalent cost over 17bp.   Of course, it helps that curve flattening is the rational reaction to a world where the economic outlook is worsening, look for instance at Europe or at the disappointing recovery in China. Add to that central banks adding another layer of hawkish paint at the European Central Bank‘s (ECB) Sintra conference which continues today, and you have the perfect recipe for a flatter curve. This thesis get an important reality check over the coming days in the eurozone, in the form of the June inflation data. Italy is the only country to publish its own today, but markets may well be tempted to extrapolate its finding to other countries until they publish their own.   One country that seems impervious to the overall gloom is the US. Perhaps due to its lower reliance on global demand for growth, or perhaps due to the resilience of its domestic job market. The result is the same. Markets increasingly believe the Fed will hike at least once more in this cycle. If US curve developments are highly correlated to its foreign peers, albeit for slightly more upbeat reasons, its curve has shifted upwards relative to its European peers. Despite arguably encouraging progress relative to Europe on the inflation front, euro-dollar yield differentials have widened. This yield divergence coincides with the divergence in economic surprise indices, albeit to a less spectacular extent.   EU gloom and US glee both result in flatter curves, helped by carry   Today's events and market view Italy is the first Eurozone member state to release its June inflation today. It will be followed by Germany and Spain tomorrow, and France and the eurozone on Friday. ECB monthly monetary aggregate data, including M3 growth, and Italian industrial production complete the list. US data is relatively thin today, with only mortgage applications and inventories to look out for. This will leave plenty of time for investors to scrutinise central banker comments with an all-star line-up comprising Fed, ECB, Bank of Japan and Bank of England governors. TLTRO and eurozone financial system nerds will also look at the 3m LTRO allotment which settles tomorrow, a day after today's June TLTRO repayments. Yesterday, settling with the repayments, the central bank allotted €18bn at the weekly main refinancing operations facility, the most since 2017. Presumably, some lenders find its 4% interest rate the most attractive option, or maybe the only available, to finance the repayment of TLTRO funds. Italy accounts for today’s euro sovereign bond supply with 2Y debt, followed in the afternoon by the US Treasury selling 2Y FRN and 7Y T-notes.

FX Daily: Quiet start to an intense week The Independence Day holiday in the US means the week should start quietly in markets, but US data will soon attract the market's attention again now that a July Fed rate hike is a consensus view and there is also speculation about a move in September. We think the dollar can find some support this week. In the CEE region, central banks in Romania and Poland meet.   USD: Data in focus amid thin holiday volumes The month of June saw the dollar weaken against all G10 currencies except for the Japanese yen, but the greenback has been quite supported in the past few days. Some hawkish comments by Federal Reserve Chair Jay Powell at the Sintra central bank symposium last week have helped markets to close the gap with the FOMC’s dot plot projections: the Fed funds futures curve currently prices in 34bp of tightening to the peak, a 10bp increase compared to a week ago. Crucially, markets are now actively considering the option of two rate hikes. This week should start quite quietly with the Independence Day holiday meaning US markets should have reduced flows until tomorrow. Still, US data activity will peak as markets assess the probability of a September hike now that a July increase appears to be the consensus view. Today, all eyes will be on the ISM manufacturing index, although a greater focus will be on the services survey released on Thursday (the May print dropped more than expected). On Friday, jobs figures for the month of June will be published: after the latest comments by Powell, it will probably take a very weak reading to put a July hike under discussion. On the Fed side, the first event to note is on Wednesday, when the June FOMC minutes are released. The dollar can probably find some more support this week as markets see more reasons in the data and the minutes to gradually align with the more hawkish dot plot projections.

EUR: Core inflation issues continue for the ECB The decrease in headline inflation in June was likely insufficient for the European Central Bank given the tick-up in core prices (from 5.3% to 5.4% for the whole euro area). With President Christine Lagarde having pre-committed to a July hike, the discussion is currently around a move in September. Markets are fully pricing in two final hikes, but not by September. Either way, the stickiness in core inflation will give the ECB hawks a chance to reinforce their message. With ECB members having had the opportunity to clarify their rhetoric at the Sintra symposium last week, this week’s speakers may not have a very strong impact on the euro, even though markets will be interested in comments following the inflation report for June. It seems likely that the USD leg will drive most of the EUR/USD moves this week, especially once US data starts to come in. There is some room for the pair to decline modestly on the back of some dollar strength, although a big drop below 1.0800 may be premature.

Dollar weakens as inflation cools Apple reaches historic $3 trillion market cap Fed rate hike bets eye a peak at 5.410%   US stocks are rallying after the Fed’s favorite inflation gauge showed the disinflation process remains intact and the consumer is showing signs of weakness. A hot inflation report and Fed swaps might have been convinced that a second-rate hike by year end was likely.  Treasury yields edged lower after the PCE report was a little dovish. US Data The core personal consumption expenditure index, a key reading followed by the Fed rose 0.3% in May, matching the consensus estimate.  On annual basis, the PCE reading dropped from 4.7% to 4.6%.  Personal spending came in softer at 0.1%, while the prior reading was revised lower from 0.8% to 0.6%.  The consumer is starting to look a lot weaker and that should support inflation to drop even further over the coming months.   Apple Apple is attempting to become the first $3 trillion company as Wall Street remains all-in on mega-cap tech stocks.  Last month, Apple’s capitalization became more valuable than the entire Russell 2000 and it seems like that could widen further.  Apple got a boost after Citi raised their price target to a Street-high price of $240.  Apple’s outlook remains solid given their balance sheet and future revenue projects, but these latest gains might be more of a defensive switch for traders who see a US economy that is recession bound.    

AUD: Another skip by the RBA The Reserve Bank of Australia (RBA) kept rates unchanged overnight, as expected by the OIS market which was attaching a 20% implied probability of a hike before the meeting. Once again, policymakers have decided to attach greater importance to the monthly inflation reading (May’s CPI slowed from 6.8% to 5.6% year-on-year) than to jobs market figures (the latest print was very strong). Still, the statement clearly leaves the door open for more tightening if required and reiterates a strictly data-dependent approach to further monetary policy decisions. Today’s hold is explicitly referred to as needed to provide the Board with “more time to assess the state of the economy and the economic outlook and associated risks”. As noted by our economics team in a note released overnight, September could be a better occasion for the RBA to increase rates again, as it can assess the impact of large electricity tariff increases due in July, which should become visible in CPI figures by September. Markets are actively speculating on further RBA tightening and the initial drop in AUD/USD after the hold is already being reverted. With a September rate hike almost fully priced in, we expect the pair to be almost entirely driven by external factors (Fed, US data, Chinese sentiment): for now, the upside looks somewhat limited, although the room for a rally later in the year should emerge.  

Today's events and market view Ahead of Germany’s factory order and industrial production (IP) to be released tomorrow and Friday respectively, IP figures for France and Spain will be published this morning. Services PMI for Europe this morning are all second readings except for Italy and Spain. A further decline in the services index would undermine the ECB’s hawkish message, with employment and price components of particular interest. The ECB publishes its monthly consumer survey which includes questions on inflation expectations. The disinflation narrative should receive a boost from Eurozone PPI settling around negative values. US data consists of factory and durable goods orders. This will be followed by the minutes of the June FOMC meeting, where the Fed’s committee decided not to increase rates for the first time since early 2022. The Fed will be keen for markets to see the hawkish side of that decision and that it heralds a more protracted tightening cycle. The Fed’s dot plot still implies 100bp of cuts in 2024. Fed communication may well chip away at that message next. Bond supply consists of the UK selling 3Y debt.

EUR: Downside risks into the weekend Medium-term consumer inflation expectations in the eurozone continued to ease in May, with the 12-month expectation gauge declining from 4.1% to 3.9%. However, long-term (three-year) inflation expectations – arguably of greater interest for the European Central Bank - remained unchanged at 2.5%, well above the bank’s 2% target. When taking June’s flash core CPI estimates on board, the ECB hawks hardly lack arguments to continue tightening. Today, the eurozone calendar is very light, and EUR/USD will trade in line with the dollar's reaction to US data. We suspect the pair is facing some downside risks in the latter part of the year after the FOMC minutes set the bar quite high for data to convince markets to price out Fed rate hikes. There is still a gap to be filled (around 20bp) between the Fed communication (dot plots) and the market pricing, while the ECB’s communication is pretty much matched by the EUR OIS curve, which currently embeds two hikes by year-end. EUR/USD could slip below 1.0800 before the end of the week, if US data were to come in on the strong side.

The ECB is holding its hawkish line The Bundesbank’s Joachim Nagel, one of the more prominent hawks of the European Central Bank, has been on the wires over the past few days pushing the known narrative that rates need to rise further and that the fight against inflation was more akin to a long distance run than a sprint. The transmission of monetary policy seems to be working with the latest ECB bank interest statistics showing a strong pass-through. On the inflation front there are also some more encouraging disinflationary signs. The PPI dipped into negative territory yesterday coming in lower than expected and pointing to lessening pipeline pressure. The ECB’s own consumer survey also saw a further drop in inflation expectations. At the same time the macro backdrop is getting gloomier, with the final PMIs having been revised lower just this week. Some will caution that the ECB models are not as reliable nowadays as before, so there has to be an increasing focus on current inflation dynamics. While falling price expectations of consumers are positive, they are usually closely correlated to what happens with current inflation. Some more dovish ECB members, such as Italy's Visco, have spoken out against the hawks' calls to err on the side of doing too much on rates.  For now the market is still buying into the story that more hikes are needed and is now fully discounting two more rate hikes from the ECB by the end of the year. But there are also question marks, and these will only get larger with more disappointing data, as to how tenable that hawkish ECB position is. Markets are discounting the first rate cut by summer 2024, though not yet fully discounting three cuts from the peak in total by the end of 2024.  The longer outlook is showing growing cracks. Its not just that the curve remains deeply inverted. Its also real rates for instance that have not really recovered from their 40bp slump in late May to late June. Hitting a low around zero, the 5y5y real ESTR OIS is still below 10bp. The flipside though is a 5y5y inflation forward still at 2.55%, and still on an unbroken, general upward trend since mid-2020. This is something the ECB will be watching more closely.   Today's events and market views US data remains the main focus. At the start of the week the ISM manufacturing again painted a gloomy picture, but the ISM for the services sector out today represents the larger share of the economy. Here the consensus is to see a rebound from the dip to the 50 level, and we think this should help a great deal in getting 10Y UST yields to 4%. Ahead of tomorrow's official US jobs report the ISM's employment sub component will also get more scrutiny – it had dipped below 50 last month, contrasting with the later strong payrolls number. Of course, the ADP estimate will also have some (limited) bearing on expectations tomorrow, while the initial jobless claims and JOLTs job openings data should allow a more contemporaneous sense of the current labour market situation in the US. So far it has been surpringly resilient. The main data event in the eurozone are the retail sales numbers following Germany's factory orders this morning. The Bundesbank's Nagel has his fourth scheduled appearance this week. Sovereign bond supply will come from France and Spain today. Being geared to the longer end of curves supply may have helped the curve bounce off the extreme lows in past sessions. 

CEE: Disinflation continues across Central and Eastern Europe, opening up the possibility of central bank rate cuts. However, lower inflation does not necessarily mean faster rate cuts. The local story will increasingly create divergence across the region.   Commodities: We have revised lower our oil forecasts for the latter part of the year. A more hawkish Federal Reserve, limited speculative appetite (given the uncertain outlook), robust Russian supply and rising Iranian supply all suggest that the market will not trade as high as initially expected.   FX: The dollar downtrend is "on hold" as markets await key data to determine the new peak for Fed rates and the timing of rate cuts. EUR/USD may trade around or slightly below 1.10 in the third quarter as the US data story fails to turn clearly USDnegative, but medium-term undervaluation and a forecasted drop in US short-term rates suggest a climb to 1.15-1.18 in 4Q23/1Q24 remains possible.   Rates: Market rates are feeling the pressure. Risk assets have been bought into, and inflation is not calming fast enough. Central banks are piling further pressure on them. The US 10yr Treasury yield won't look right until it hits 4% and can take out the prior high. The 10yr Bund yield should get back to 2.75%, at least, and can still look up, possibly to about 3%.

EUR: Not worth chasing it higher for now EUR/USD was meant to be primarily a dollar story in the latter part of this week and the pair is finding some support due to the soft-ish USD momentum, despite strong US data. As highlighted above, we see a dollar comeback as likely, so we would be reluctant to chase a EUR/USD much beyond 1.0900. The current set of market conditions would suggest 1.0750/1.0800 to be a more appropriate trading range. The eurozone calendar remains uninspiring from a data standpoint but there are some ECB speakers to monitor today. President Christine Lagarde will participate in a panel although it is unclear whether she will discuss monetary policy, and we’ll also hear from Guindos, Stournaras and Nagel. In the UK, the Bank of England published a survey of corporate pricing plans yesterday, which included some encouraging news for lower inflation. Our UK economist discusses in this article how Bank of England members  – and markets – are losing confidence in these forward-looking indicators and at least two more 25bp hikes are on the cards. Still, the inflation picture should improve later this year, which means some pricing out of BoE rate expectations can come hitting the pound down the road. For now, it remains hard to see a sustained GBP downtrend.

Dollar wavers post Chinese data 10-year Treasury yield down 2.3 points to 3.809% JPMorgan extends gains post Friday’s earnings US stocks are slightly higher after some disappointing Chinese GDP data raised concerns about the global economy but supported the argument that disinflation pressures are firmly in place.  The disinflation story won’t be going away after Ford announced some big cuts with their electric F-150 truck prices.  The disinflation process should remain intact and that should support calls that the Fed will be done after one more rate hike at the end of this month.  Wall Street is bracing for some big bank earnings that might not mirror what JPMorgan said last week. The key to the stock market remains the mega-cap tech trade and many traders won’t do any major positioning until we hear from Netflix and Tesla.     China’s slowdown dragged European stocks.  Another record high for China’s youth unemployment won’t do any favors for demand for European goods in the coming months.  China still expects growth around 5% to be reached but that will be hard unless the PBOC delivers more stimulus.    US Data The first Fed regional survey showed that NY state factory activity managed to stay in expansion territory, while prices paid fell to the lowest levels since August 2020.  The headline general business conditions index dropped 6 points to 1.1. The manufacturing sector is expected to rebound here despite a slight rise with new orders and as shipments expanded.  The report noted that optimism remained subdued and that capital spending will remain soft.      The rest of the Fed regional surveys will likely show overall weakness in the manufacturing sector, along with optimism that pricing pressures are easing.    

FX Daily: The pound's big repricing is finally happening UK inflation slowed more than expected in June, triggering a large dovish repricing in Bank of England tightening expectations and hitting the overbought pound. We now think a 25bp hike looks more likely than a 50bp move in August. GBP may stay under pressure, especially against the dollar – which we still expect to recover some ground into the FOMC meeting.     USD: Slowly regaining ground? The round of US data releases was quite mixed yesterday, and as discussed by our US economist in this note, likely supported the case for a pause after a July hike by the Federal Reserve. June’s headline retail sales came in a bit softer than expected (0.2% month-on-month) but the control group which excludes some volatile components actually beat consensus (0.6% MoM). The real data miss came on the industrial production side, which confirmed the negative indications of a contracting ISM index and fell 0.5% MoM in June, despite expectations of 0% growth. All in all, markets aren’t lacking evidence of slowing activity in the US, and the addition of the favourable disinflationary backdrop now weakens the case for another hike beyond July. The lagging unemployment remains the last piece of the puzzle to smoothen the transition to a more dovish rhetoric, and one that may keep the Fed leaning on the hawkish side by keeping all options open in July. From an FX perspective, next week’s FOMC meeting could be the opportunity to recover some lost ground. We cannot exclude the possibility that markets will position ahead of the meeting by closing some freshly-built speculative dollar shorts, which could help close the short-term USD undervaluation gap against the euro. Today, some housing data and MBA mortgage applications will be in focus and we still see room for some marginal dollar recovery. One pair that remains overvalued despite recent USD-negative swings is USD/JPY, and we have been observing fresh weakness in the yen during the late US session and throughout the Asian session following dovish comments by Bank of Japan Governor Kazuo Ueda. With a little over a week to go before the BoJ rate announcement, Ueda said it would take a shift in the assessment to achieve its inflation targets in order to change the ultra-accommodative monetary policy stance. We should note that these remarks by Ueda are quite in line with his recent efforts to carefully manage expectations on the dovish side. We don’t necessarily see indications that would significantly lower the chances of a policy shift in July. As noted by Ueda in recent comments, the new projections will remain the key factor next week. Market reaction has likely been heightened by the proximity to the meeting. Not too far from Japan (relatively speaking), New Zealand saw the release of second-quarter inflation overnight. Headline CPI slowed from 6.7% to 6.0% year-on-year, slightly above the 5.9% consensus but still below the bank’s 6.1% forecast. One important caveat: non-tradeable inflation (watched closely by the Reserve Bank of New Zealand) slowed less than the bank’s forecasts, and the RBNZ-issued core inflation gauge remained unchanged from the first to second quarter at 5.8% YoY. Markets now price in 50-60% chance of a hike by November, which looks about right in our view, even though NZD’s near-term outlook remains much more driven by external factors.

EUR: ECI to the rescue Thursday proved a bad day back in the office for EUR/USD. The ECB press conference proved a negative for the euro as ECB President Lagarde backed away from a September rate hike and seemed to acknowledge both softer activity data and welcome disinflation. This was not really a bloodbath for the euro – indeed the trade-weighted euro did not move too much, nor did two-year rate differentials. It just so happened that we had some strong US data coming out at the same time. If we are right today with our call for a soft ECI number, we could see EUR/USD breaking back above 1.1000 and starting to trace out the kind of 1.1000-1.1150 range over the coming sessions. Chris Turner As usual this week, the calendar in the CEE region doesn't have much to offer. But still, like yesterday, CEE will have to consume the global story, which brought a lot of new news again. The main news here is of course the lower EUR/USD, which complicates the positive picture we described yesterday for CEE FX. But on the other hand, positive market sentiment is going full speed ahead with the end of the global hiking cycle in sight. Thus, FX in the region has every right to be confused about which direction to go now. We are leaning more on the bullish side again, but EUR/USD will be a problem and hold back further gains for CEE FX today.

EUR: Markets too dovish? Yesterday’s set of data releases in the eurozone showed the growth and inflation side moving in diverging directions. The euro area grew slightly more than expected, at 0.6% year-on-year (0.3% quarter-on-quarter) in the second quarter, while inflation slowed in line with consensus from 5.5% to 5.3% in July. Core inflation was, however, unchanged at 5.5%. The most interesting dynamic in inflation, and one that the ECB will likely follow closely, is related to service price pressure. While goods inflation continues to ease, service price pressure has kept mounting in line with wage growth and stronger demand.   In our view, yesterday’s figures leave the door open for another hike by the ECB before the end of the year, even in September. Markets, however, remain reluctant to endorse this scenario and only price in 17bp of tightening by December, likely having read last week’s ECB messaging as a dovish tilt. It is possible investors will want to hear more hawkishness from ECB members before aligning with the data’s indications and fully price in another hike. However, August is a quiet month for ECB speakers: we’ll hear from the dove Fabio Panetta later this week, and that will hardly help. EUR/USD should be primarily driven by the dollar leg and US data for the remainder of the week, and there are some downside risks to the 1.0900 handle.

Eurozone Q2 GDP returned to growth with a 0.3% advance reading (prior revised higher to 0.0%). Eurozone core inflation held steady at 5.3% Stocks have a flat session as traders await NFP Friday US stocks are wavering ahead of a key Fed survey that should show loan growth is weakening and that the economy should steadily weaken.  The Senior Loan Officer Opinion Survey (SLOOS) will tell us how top lending officers feel about the credit outlook. The US dollar isn’t making any major moves as Wall Street grows more confident that a soft landing is very much obtainable.  Many traders won’t do much positioning until Friday’s NFP report, which should show the labor market remains tight.  The key for the payroll report might be what is happening with wages, as it seems fears of an acceleration of inflation have been downsized.  This week also includes the ISM reports which should show manufacturing activity is picking up and the service sector is cooling.  Weakening growth prospects is not the takeaway from this earnings season, but that could change if Apple and Amazon’s results tell a different story.      The euro remains heavy as concerns grow for Germany’s outlook.  German economy minister warned of five tough years and that bleak outlook could weigh on the euro.  EUR/USD might start to form a narrow trading range but that could change once we get beyond the NFP report.  It seems everyone is in wait-and-see mode and right now the US jobs report will steal the spotlight. The 1.0950 to 1.1050 could emerge as the key trading range until this week’s fireworks. US Data Both the ISM Chicago PMI and Dallas Manufacturing survey showed activity improved for a second consecutive month.  The Chicago PMI was softer-than-expected but has yet to benefit from increasing aircraft orders.  The Dallas Fed did not provide an inspiring outlook as activity remains sluggish, while prices paid and received rose.  The manufacturing part of the economy is still in contraction territory and the recovery will likely be unbalanced.   

Analysis of GBP/USD 5M   On Friday, the pound sterling corrected higher after the release of US data. There were three reports, two of which were simply ignored by the market. The decline in the unemployment rate did not save the US dollar from falling, as the market only considered the NonFarm Payrolls, which came in lower than forecast, and the value of the previous month got revised lower.   Therefore, there were grounds for the dollar to fall on Friday. In the UK, there were no important reports or events. The US dollar fell by approximately 105 pips from the daily lows, but if we look at the opening and closing prices of the day, its losses were only 40 pips, and at that moment, they were almost negated. We believe that the pound has no grounds to resume the uptrend.   The trading signals for the pound were almost identical to those for the euro. Traders could use the bounce from the level of 1.2693 to open long positions. Subsequently, the pair broke through the area of 1.2746-1.2762, and it remained above it until the end of the trading session. As a result, the long position could be closed anywhere above the mentioned area, and the profit amounted to at least 70 pips.   COT report: According to the latest report, the non-commercial group of traders closed 13,300 long positions and 3,800 short ones. Thus, the net position of non-commercial traders fell by almost 10,000 positions in a week. But in general, it is still rising. The net position has been steadily growing over the past 10 months as well as the pound sterling. Now, the net position has advanced markedly. This is why the pair will hardly maintain its bullish momentum. I believe that a long and protracted downward movement should begin. COT reports signal a slight growth of the British currency but it will not be able to rise in the long term.   There are no drivers for opening new long positions and not many technical signals for short positions either. The British currency has already grown by a total of 2,800 pips, from its absolute lows reached last year, which is a significant increase. Without a downward correction, the continuation of the uptrend will be illogical. However, there has been no logic in the pair's movements for quite some time. The market perceives the fundamental background one-sidedly, ignoring any data in favor of the dollar. The Non-commercial group of traders has opened 92,100 long positions and 42,600 short ones. I remain skeptical about the long-term growth of the pound sterling but speculators continue to buy and the pair continues to rise.   Analysis of GBP/USD 1H     On the 1H chart, the pound/dollar pair has started to correct, but has not yet broken the downtrend. Consolidation below the critical line may signal a resumption of the downward movement. We believe that there are no grounds for the sterling's growth, so we expect the decline to resume. Of course, that doesn't mean that the pair will fall every day. Periods of consolidation, flat movements, and corrections are possible. On August 7, traders should pay attention to the following key levels: 1.2520, 1.2598-1.2605, 1.2693, 1.2762, 1.2863, 1.2981-1.2987, 1.3050. The Senkou Span B (1.2868) and Kijun-sen (1.2734) lines can also be sources of signals, e.g. rebounds and breakout of these levels and lines. It is recommended to set the Stop Loss orders at the breakeven level when the price moves in the right direction by 20 pips. The lines of the Ichimoku indicator can move during the day, which should be taken into account when determining trading signals. There are support and resistance levels that can be used to lock in profits. On Monday, there are no important events or reports lined up in the UK and the US, except for perhaps Michelle Bowman's speech. However, it's a bit of a stretch to consider this event important. Therefore, we expect calm movements akin to a flat.   Description of the chart: Support and resistance levels are thick red lines near which the trend may end. They do not provide trading signals; The Kijun-sen and Senkou Span B lines are the lines of the Ichimoku indicator, plotted to the 1H timeframe from the 4H one. They provide trading signals; Extreme levels are thin red lines from which the price bounced earlier. They provide trading signals; Yellow lines are trend lines, trend channels, and any other technical patterns; Indicator 1 on the COT charts is the net position size for each category of traders; Indicator 2 on the COT charts is the net position size for the Non-commercial group.  

EUR: Lack of strong support EUR/USD appears stuck in a relatively low volatility environment, despite feeling some pressure. The swings in the 2-year swap rate differential are not proving dramatically impactful on the pair, but the retightening of the spread from the 140bp area to the 134bp is probably offering a bit of support. Eurozone data continued to do very little to help a rapid turnaround in the euro’s softish momentum, though. Yesterday, 2Q GDP growth was confirmed at 0.3% QoQ and employment figures at 0.2% QoQ. With forward-looking indicators pointing at an economic slowdown in key parts of the euro area, a EUR/USD rally later this year (which is still our base case) should rely primarily on a decreasing attractiveness of the dollar rather than on an idiosyncratic EUR boom. It may be yet another rather quiet day in FX today, and barring a major surprise on the US data side – and considering the eurozone calendar is quite light – EUR/USD should keep hovering around 1.0850/1.0900.

Stocks rebound, but volatility rises.  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank       Stocks rebounded on Monday, in a move that looked more like a correction than a reaction to fresh news, as there was no fresh news that went against the slowing China rhetoric, nor against the fear that we will hear something sufficiently hawkish this Friday from Jerome Powell's Jackson Hole speech. At this point, the hawkish Federal Reserve (Fed) expectations are mostly priced in, leaving room for some up and down moves. So yesterday's session was not only marked by a rebound in the S&P500 from the October to July ascending baseline, but also by a visible rise in volatility. Nasdaq 100 jumped 1.65% as well, but the US 2-year yield returned well above 5%, and the 10-year yield pushed to a fresh high since 2007.     One interesting thing is, in 2007, when the US 10-year yield was at these levels, the positioning in the market was deeply negative – meaning that investors expected the yields to rebound, while today the positioning is deeply positive, meaning that investors expect the yields to bounce lower. And that's understandable: the US 10-year yield was on a steady falling path in 2007, so there was a reason for investors to expect a rebound – which did not happen. In a similar way, today, we are just coming out of a long period of near zero rates, so for our eyes, the actual levels seem very high. That explains why many asset managers expect the yields to fall. There is also a growing interest in US 10-year TIPS – which are protected against inflation, and which hit the 2% mark for the first time since the GFC as well. But there is not much reason other than our low comparison levels that gives reason to an imminent reversal in market direction. The US data is strong, the labour market is tight, and inflation is slowing but 'significant upside risks' prevail. A recent study warned that unless the monthly CPI stays below the 0.2%, inflation is headed higher in 2024. So there is a chance that we won't see a downside correction in the US 10-year yield, and if that's not the case, the selloff could extend until the 10-year yield settles somewhere between 5-5.50%.     Anyway, the market mood got significantly better yesterday. Tech stocks fueled the rally in the US, as Nvidia jumped 8.5% yesterday, a day before the release of its Q2 results. Nvidia'd better meet its $11bn sales forecast for last quarter, otherwise, there is a chance that we will see a sizeable downside correction.     In Europe, oil stocks shouldered yesterday's rally, as the barrel of US crude made an attempt above the $82pb, on lower OPEC+ exports and on the back of a golden cross formation on a daily chart where the 50-DMA crossed above the 200-DMA. But yesterday, that wasn't the case. Oil's positive attempt remained short-lived, on the contrary, and the barrel of crude is preparing to test the $80pb support to the downside again this morning. The market is driven by two major forces: the supply tightness and the Chinese demand expectations. These days, the Chinese demand expectations are very much in focus, which could help the oil bears take advantage for selling the recent rally in oil prices. But tighter OPEC rhetoric will remain a major support into the 200-DMA, near $76pb.  

US banks fall on fresh rating downgrades, Nvidia earnings in focus  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank     The market mood turned sour again, and the S&P500 fell after a short relief. S&P's bank rating downgrades – which came a few days after Moody's downgraded some US small and mid-sized banks and Fitch downgraded the US' rating, came as a reminder that the rising rates won't be benign for banks as depositors move their funds into higher interest-bearing accounts, increasing banks' funding costs. The decline in bank deposits squeezes liquidity, while the value of securities that they hold in their portfolios decline. Plus, regional banks continue to face the risk of a sharp decline in commercial real estate loans. As a result, the S&P500 fell 0.28% on Tuesday, Invesco's KBW bank ETF dived more than 2.50%.       Elsewhere, the rising rates and declining purchasing power finally start showing in some retailers' quarterly announcements. Macy's for example sank 14% yesterday on rising credit card delinquencies and Dick's Sporting Goods slumped more than 24% on 'elevated inventory shrink – in particular theft. Both companies gave a morose outlook for consumer demand moving forward. Could that be a sign of potentially slower consumer spending in the next few months? We will see that. For now, the latest US data remains strong, the Fed expectations are hawkish, no one sees Jerome Powell back off with the Fed's tightening policy, and the US yields are rising. The US 2-year yield pushes higher above the 5% mark, while the 10-year yield struggles near 4.30%, where it sees decent resistance. In one hand, there is a strong demand for US 10-year papers at these levels as many asset managers consider that the levels are good entre points. On the other hand, the hawkish Fed expectations, prospects of – maybe – higher rates, which will be held for a prolonged period of time continue pressuring the yields higher along with the US Treasury's plan to issue more bonds in H2 – as they issued too many T-bills so far to fund their deficit.       And there is one more thing weighing on US treasuries and that's China. Yes, the sluggish Chinese growth is tempering energy and commodity prices and doesn't add to inflationary pressures. But Beijing adds on the US Treasury selloff as it fights against a softer yuan. The People's Bank of China (PBoC) set its daily yuan fixing surprisingly higher than expected this week in a move that Bloomberg described as the most forceful on record.       When the USD/CNY rallies due to higher US and lower Chinese yields, the Chinese sell their US denominated assets to defend yuan. And doing so, they contribute to the further strengthening of the US yields, and the US dollar is pressured higher on the back of stronger yields. Then, the cycle starts all over again. A stronger dollar, and weaker yuan forces the PBoC to sell USD assets. The UST selloff pushes US yields higher and strengthens the dollar and the yields.   

Atlanta Fed’s GDP estimate sees real Q3 GDP growth of 5.9%, up from last week’s 5.8% Fed Chair Powell’s Jackson Hole Speech is scheduled for tomorrow at 10:05 am EST Fed’s Harker (voter) says they’ve done enough with rates while Fed’s Collins (non-voter) more rate hikes may be needed   As Wall Street awaits Fed Chair Powell’s Jackson Hole speech, some traders shifted their focus to Federal Reserve Bank of Philadelphia Patrick Harker’s CNBC interview. When talking about interest Harker said, “Right now, I think that we’ve probably done enough.” Harker is a voting member of the FOMC and he appears to be positioning himself to turn dovish in the near future. He also noted that, “I’m in the camp of, let the restrictive stance work for a while, let’s just let this play out for a while, and that should bring inflation down.” He added that if inflation comes down quicker, they may cut rates sooner. A month ago, Harker was saying that they are making progress with inflation and that sometime next year the Fed will start cutting rates. Harker for most of this year has been viewed as a neutral FOMC voting member, one notch below Fed Chair Powell who has being leaning-hawkish.  Harker’s dovish comments don’t imply that is what we will get from Fed Chair Powell, but it does suggest the committee might be gaining confidence that they will be able to bring down inflation to the Fed’s 2% target. Fed’s Collins, a non-voter noted that “We may need additional increments, and we may be very near a place where we can hold for a substantial amount of time.”   Foreign Investment Flows US stocks initially rallied after Nvidia’s miraculous earnings reignited the AI trade.  If AI is the future, then Nvidia is the “fluxcapacitor” that will drive the biggest transformation in tech since the Back to the Future trilogy wrapped up in the 1990s.  With Europe looking more recession bound, foreign investment might steadily come to US equities and that should support US equities. It is clear that massive investments are coming AI’s way and that could keep stock market bulls very happy as long as we don’t have Fed Chair Powell spoil the party.  If the bond market selloff doesn’t resume after Powell’s speech, the stock market might have a bullish case to make a run at record highs, which should provide underlying support for the dollar.   US data keeps Fed rate hike expectations low for the September 20th This morning’s round of data didn’t really move the needle on Fed rate hike expectations.  Yesterday odds were at 12% and today they rose to 17% for the September 20th meeting. Filings for unemployment benefits came in less than expected, signaling that the labor market is slowly cooling.  Initial jobless claims fell by 10,000 to 230,000, while continuing claims dipped from 1.711 million to 1.702 million.  A surge in claims (+3.7K) came from Hawaii as they were heavily impacted by the devastating wildfires. Jobless claims will likely stabilize or rise going forward. Durable goods order data showed business spending activity barely increased as companies became more cautious with the budget. ​ Bookings for all durable goods tumbled ​ given softness with the volatile commercial aircraft orders. ​ Businesses are turning very cautious here given how high borrowing costs have gotten and over the deteriorating outlook for business equipment.   USD/JPY 60-minute chart   USD/JPY (60-minute chart) as of Thursday (8/24/2023) shows the bullish move that started yesterday has continued by respecting short-term trendline support(shown in purple).  If we see a substantial rally towards last October’s high, that could trigger intervention pressure from Japan.  If the surge in Treasury yields continues, that could provide some tactical bullish positioning between the 145.00-148.00 region. If risk aversion emerges post Jackson Hole, the 143.50  level provides major support and a possible re-entry for long-term bulls.  

Germany to release CPI on Wednesday, Eurozone on Thursday US consumer confidence and jobs data disappoint   The euro’s mini-rally has run out of steam. EUR/USD climbed 0.80% over the past two days but is trading in negative territory on Wednesday. In the European session, the euro is trading at 1.0867, down 0.11%. The markets will be keeping a close eye on European inflation releases today and Thursday. Germany releases the July CPI report later today, with a consensus estimate of 6.0%, compared to 6.2% in July. The once-formidable German juggernaut is in trouble and inflation remains high. The eurozone releases July CPI on Thursday, which is expected to drop from 5.3% to 5.1%. The ECB meets next on September 14th and ECB President Lagarde may have signalled that another rate hike is coming. Lagarde attended the Jackson Hole summit last week and said that interest rates would remain high “as long as necessary” in order to bring inflation back to the ECB’s 2% target. Lagarde’s hawkish remarks were more hawkish than her comments at the July meeting, where she said that ECB policy makers had an “open mind” about the September decision.   There’s no arguing that eurozone inflation remains too high, but the argument against raising rates even higher is that the eurozone economy is not in great shape, and nine straight rate hikes from the ECB have cooled economic growth. Further hikes could tip the economy into a recession, which means that the ECB has its work cut out in deciding whether to raise rates again or take a pause in September. The Federal Reserve is widely expected to hold rates at next week’s meeting, and disappointing data on Tuesday may have cemented a pause. The Conference Board Consumer Confidence Index fell sharply to 106.1 in July, compared to 116.0 in August, marking a two-year low. As well, JOLTS Job Openings slowed to 8.82 million in July, down from 9.16 million in June and well off the estimate of 9.46 million. This was the sixth decline in the past seven months, a sign that the resilient US labour market is showing cracks.   EUR/USD Technical EUR/USD is putting strong pressure on resistance at 1.0896. The next resistance line is 1.0996 1.0831 and 1.0731 are providing support    

Asia Morning Bites India 2Q23 GDP data will be in focus today. More growth momentum worries for the BoK, while Japan's recovery still looks on track. US data continues to come in softer-than-expected.   Global Macro and Markets Global markets: US equities moved slightly higher on Wednesday in fairly steady trading, though the gains were not large. The S&P 500 rose just 0.38%, while the NASDAQ rose 0.54%. Equity futures aren’t giving much clue as to today’s direction. They are slightly positive for the moment, but that could change. Chinese stocks were practically unchanged on the day – for both the Hang Seng and CSI 300. Both indices opened higher, but fairly quickly drifted back towards the previous day’s close. There wasn’t much action in Treasury markets. Yields on the 10Y bond were drifting higher but dropped back on the slightly lower ADP release and the 2Q23 GDP downgrade.  Both the 2Y and 10Y yield fell less than a basis point compared to yesterday. There was more action in FX markets. EURUSD has risen to 1.0931 which feels like a delayed response to earlier rate moves. The AUD shrugged off yesterday’s lower-than-expected inflation data and is now roughly unchanged at 0.6479. Cable made more lasting gains, and has risen back up above 1.27. The JPY is roughly unchanged at 146 after a choppy day yesterday. Other Asian FX had a mixed day, but there were no big movers. The CNY is currently trading at 7.2869.   G-7 macro:  Yesterday’s US macro data continued the softer theme that started a few days earlier. The ADP print of 177K was down from the 195K consensus – though as a predictor of non-farm payrolls, the ADP’s recent record is not good. And 2QGDP was revised lower to 2.1% from the initial 2.4% reading. There was also a slight revision lower of the quarterly core PCE figures. We will get the monthly PCE data for July today. The core PCE inflation rate should nose higher to 4.2% YoY from June’s 4.1% result. Preliminary German CPI inflation data for August yesterday only fell by 0.1pp to 6.4%YoY, less than had been expected. For an excellent read on all things inflation-related, and whether or not to expect a second wave of inflation, please find the time to read this article from our Macro team.   India: 2Q GDP is released later today. Nowcasts for GDP are pointing to about a 7.8%YoY growth rate, up from 6.1% in 1Q23 – though these year-on-year numbers are being whipped around by base effects, and it is not 100% clear that this illustrates any sort of trend. Nonetheless, this would be another solid quarter of growth from India, which has been somewhat insulated from the China spillover weighing on other Asian economies, or the semiconductor downcycle, and would leave the economy on track to achieve something close to 7% growth for the full calendar year.   South Korea: Monthly activity data showed growth momentum running out of steam due to weak domestic demand and weak production of semiconductors. Manufacturing IP dropped 2.0% MoM sa in July (vs revised -1.5%, -1.0% market consensus), led by declines in electrical parts (-11.2%) and machinery (-7.1%). Shipments fell even faster (-5.2%) and so inventories continued to rise (5.2%).  For semiconductors, production dropped by 2.4%, the first decline in five months. However, due to sluggish shipments, inventory levels rebounded again. As inventory adjustment has been slower than expected, the rebound of the chip cycle will probably come even later than the end of this year. Other than manufacturing, construction and services rose 0.8% and 0.4% each, but public administration fell sharply (-6.5%), thus all industry IP fell -0.7% for the first decline in three months.  Meanwhile, consumption and investment also slid with retail sales down -3.2% and facilities investment down -8.9%. The weak start of the quarter means that 3QGDP is likely to slow down quite rapidly compared to the previous quarter’s 0.6% QoQ growth. And the Bank of Korea’s concern about growth will grow. As a result, the BoK will likely remain on hold for now as they first try to utilize micro-level policy tools to support growth. Actual policy rate cuts could come next year.   Japan: July monthly activity data was mixed with weaker-than-expected industrial production vs. stronger-than-expected retail sales. As consumption accounts for a larger share of GDP in Japan, the economy will probably continue its recovery in the current quarter, albeit at a slightly more moderate pace than the previous quarter’s 1.5% quarterly growth rate. Industrial production fell 2.0% MoM sa in July (vs 2.4% in June, -1.4% market consensus) while retail sales rebounded 2.1% (vs revised -0.6% in June, 0.8% market consensus).       What to look out for: India GDP South Korea industrial production (31 August) Japan retail sales (31 August) India GDP (31 August) China PMI manufacturing and non-manufacturing (31 August) Thailand trade balance (31 August) Hong Kong retail sales (31 August) India GDP (31 August) US initial jobless claims, PCE deflator and personal spending (31 August) Japan capital spending and Jibun PMI (1 September) South Korea trade (1 September) Regional PMI (1 September) China Caixin PMI (1 September) Indonesia CPI inflation (1 September) US NFP, ISM manufacturing and industrial production (1 September)

Rates Spark: Different focus, different outcomes US data disappointments are still putting downward pressure on yields, and a busy calendar suggests more volatility ahead. EUR rates may detach from US dynamics as inflation data and European Central Bank minutes sharpen the focus on the upcoming ECB meeting.   The resilience narrative has driven US rates on the way up, and now down US Treasury yields remain under downward pressure as 10Y yields are trying to get a foothold at around 4.1% – early last week they had hit a high at 4.35%. Bund yields, on the other hand, have managed to bounce off the 2.5% level and as a result, the 10Y UST/Bund spread has tightened to 157bp. The narrative that has driven the wedge between the US and EUR rates is now narrowing it. That is also illustrated when looking at the market moves in real rates. They had been the driver of US rates going up and are now mostly the driver on the way down. 10Y real OIS rates have dropped some 17bp from the recent peak, although inflation swaps also slipped 8bp.       Real rates were the driver the UST/Bund gap, and also the latest retightening   Inflation remains the main preoccupation of EUR rates In Europe, the concerns have been more centred around inflation. Longer real rates never picked up and stuck to a tight range, reflecting the outlook for a longer period of stagnation that was also confirmed by the latest PMIs. Instead we had a slow grind higher in longer-term inflation expectations, picking up pace again with the second quarter. While the often cited 5y5y forward inflation has come off its recent highs, the market remains sensitive to the inflation topic, with the ECB now calibrating the final stage of its tightening cycle. The somewhat slower-than-anticipated decline in German inflation yesterday was important in keeping Bund yields off the 2.5% mark. It provided the ECB’s hawks with arguments for further tightening. Never mind that it could be the last burst of German inflation for a while, as our economist thinks – with the ECB’s current mindset being more focused on actual data than forecasts, that may well be all the more reason for the hawks to push for a hike in September and not wait any longer. It may be the last opportunity. Market pricing now sees the chances for a hike next month a tad above 50%, and 90% that we will see a hike by the end of the year.    Dynamics of inflation expectations played a larger role for EUR rates   Today's events and market view US data disappointments are still putting downward pressure on yields, having stalled any attempt to move these higher over the past sessions. A busy slate of US data featuring Challenger job cuts data, initial jobless claims, personal income and spending data, as well as the Federal Reserve's preferred inflation measure – the PCE deflator, which is seen slightly up this time – means there is plenty in store to push yields around again. EUR rates, however, may manage to detach from the US rates again as the focus turns to the flash eurozone CPI release and the ECB minutes of the July meeting. The latter may provide some more insight into any changes to the balancing of inflation versus macro risks and of course the growing debate between the Council’s hawks and doves. With Isabel Schnabel, there is also a prominent hawk slated to speak in the morning – she gives the opening remarks at a conference titled “Inflation: drivers and dynamics” and may well set the tone for the day. 

Rates Spark: Different focus, different outcomes US data disappointments are still putting downward pressure on yields, and a busy calendar suggests more volatility ahead. EUR rates may detach from US dynamics as inflation data and European Central Bank minutes sharpen the focus on the upcoming ECB meeting.   The resilience narrative has driven US rates on the way up, and now down US Treasury yields remain under downward pressure as 10Y yields are trying to get a foothold at around 4.1% – early last week they had hit a high at 4.35%. Bund yields, on the other hand, have managed to bounce off the 2.5% level and as a result, the 10Y UST/Bund spread has tightened to 157bp. The narrative that has driven the wedge between the US and EUR rates is now narrowing it. That is also illustrated when looking at the market moves in real rates. They had been the driver of US rates going up and are now mostly the driver on the way down. 10Y real OIS rates have dropped some 17bp from the recent peak, although inflation swaps also slipped 8bp.       Real rates were the driver the UST/Bund gap, and also the latest retightening   Inflation remains the main preoccupation of EUR rates In Europe, the concerns have been more centred around inflation. Longer real rates never picked up and stuck to a tight range, reflecting the outlook for a longer period of stagnation that was also confirmed by the latest PMIs. Instead we had a slow grind higher in longer-term inflation expectations, picking up pace again with the second quarter. While the often cited 5y5y forward inflation has come off its recent highs, the market remains sensitive to the inflation topic, with the ECB now calibrating the final stage of its tightening cycle. The somewhat slower-than-anticipated decline in German inflation yesterday was important in keeping Bund yields off the 2.5% mark. It provided the ECB’s hawks with arguments for further tightening. Never mind that it could be the last burst of German inflation for a while, as our economist thinks – with the ECB’s current mindset being more focused on actual data than forecasts, that may well be all the more reason for the hawks to push for a hike in September and not wait any longer. It may be the last opportunity. Market pricing now sees the chances for a hike next month a tad above 50%, and 90% that we will see a hike by the end of the year.    Dynamics of inflation expectations played a larger role for EUR rates   Today's events and market view US data disappointments are still putting downward pressure on yields, having stalled any attempt to move these higher over the past sessions. A busy slate of US data featuring Challenger job cuts data, initial jobless claims, personal income and spending data, as well as the Federal Reserve's preferred inflation measure – the PCE deflator, which is seen slightly up this time – means there is plenty in store to push yields around again. EUR rates, however, may manage to detach from the US rates again as the focus turns to the flash eurozone CPI release and the ECB minutes of the July meeting. The latter may provide some more insight into any changes to the balancing of inflation versus macro risks and of course the growing debate between the Council’s hawks and doves. With Isabel Schnabel, there is also a prominent hawk slated to speak in the morning – she gives the opening remarks at a conference titled “Inflation: drivers and dynamics” and may well set the tone for the day. 

FX Daily: Resistance to dollar strength is futile The dollar remains well-bid across the board as a relentless run of above-consensus US data suggests the Federal Reserve will be in no mood to relax its hawkish stance. Resistance to the strong dollar is crumbling - most notably in China where a higher USD/CNY fixing suggests the People's Bank of China is becoming more tolerant of renminbi weakness.   USD: No reason to unwind dollar longs The dollar is consolidating near the highest levels since March as US data continues to surprise on the upside. Following the above-expected ISM Services index on Wednesday, yesterday it was the turn of the weekly initial jobless claims to drop back to the lowest levels since February and question the narrative that tightness in the US labour market is easing. With activity data staying strong, it seems the market may be more minded to buy into the idea of another 'skip' - i.e. the Fed not hiking in September but hiking again later in the year. Clearly, this pushes the idea of a Fed easing cycle later and keeps the dollar stronger for longer. As has been the case so often, the dollar is the United States currency and everyone else's problem. Here, both Japanese and Chinese officials are fighting against dollar strength - with limited degrees of success. Japanese officials are sounding like we could well see intervention shortly - e.g. in the 148-150 window in USD/JPY. The highlight of the overnight session, however, has been the People's Bank of China (PBoC) allowing a higher fixing in the onshore USD/CNY. They have maintained the spread of the fixings to the model-implied fixings of around 1100 CNY pips, but the higher fixing has put paid to ideas that Chinese officials have some kind of line in the sand for USD/CNY at 7.35. USD/CNH is currently trading above that level. Low Chinese CPI next week and a PBoC rate decision with the one-year lending rate will keep expectations alive of further rate cuts too. The weaker CNY/CNH will continue to keep EM FX broadly offered and the dollar bid. There is very little in the way of US speakers or US data today. The weekend sees a G20 meeting in New Delhi, with much focus on how new alliances develop following the recently announced expansion plans of the BRICS.  We cannot see investors wanting to offload dollar balances anytime soon. This suggests DXY stays bid near 105.00.

Next week in the US, the last major reports will be released ahead of the September FOMC meeting. The general theme is likely to be higher inflation than seen as of late. All eyes will also be on UK wage data, which will be key for locking in another rate hike from the Bank of England. In Poland, we expect to see CPI to drop below 9%   US: The general theme likely to be higher inflation It is a very big week for US data as the last major reports ahead of the Federal Reserve’s September FOMC meeting come in. Consumer and producer price inflation, retail sales and industrial production are all due, with the general theme likely to be higher inflation than seen of late versus weaker activity relative to recent trends. Nonetheless, Federal Reserve officials are seemingly of the mindset that they will likely pause interest rate hikes again and re-evaluate in November with just 2bp of policy tightening priced for later this month. For inflation, we look for fairly big jumps in August’s month-on-month headline readings with upside risk relative to consensus predictions. Higher gasoline prices will be the main upside driver, but we also see the threat of a rebound in airfares and medical care costs, plus higher insurance prices. These factors are likely to also contribute to core CPI coming in at 0.3% MoM rather than the 0.2% figures we have seen in the previous two months. Slowing housing rents will be evident, but it may not be enough to offset as much as the market expects. Nonetheless, the year-on-year rate of core inflation will slow to perhaps 4.4%. We are hopeful we could get down to 4% YoY in the September report and not too far away from 3.5% in October. We would characterise these relatively firm MoM inflation prints as a temporary blip in what is likely to be an intensifying disinflationary trend. Indeed, it was interesting to see the Fed’s Beige Book characterise recent consumer spending strength as being led by tourism expenditure, which had been "surging". But the general sense was that this would be "the last stage of pent-up demand for leisure travel from the pandemic era". Moreover, other spending was softer, "especially on non-essential items". This may well show up in the retail sales report. We already know that auto volume sales fell quite heftily too, but remember this is a value figure and that higher prices, particularly for gasoline, will help keep overall retail sales just about in positive territory. But with savings being rapidly exhausted and credit card delinquencies on the rise, there are concerns that weaker numbers are coming – particularly with student loan repayments restarting, which will add to financial stresses on the household sector. Rounding out the reports, we expect industrial production to be much softer than the 1% jump seen last month. Manufacturing surveys continue to point to contraction, and weakness in the component could offset a bit of firmness in utilities and mining/drilling activities.      

FX Daily: Hawkish vibes from Asia Governor of the BoJ Kazuo Ueda suggested the Bank may have enough evidence on wages for a policy shift by year-end. To us, it sounds like a successful attempt to support the yen. Meanwhile, the PBoC is pushing back against CNY weakness. All of this is softening the dollar momentum, but US data will be back in focus soon and USD upside risks are non-negligible.   USD: BoJ and PBOC drive dollar lower The seemingly unstoppable dollar run is being dented this morning by two currencies that had all but contributed to consolidating USD strength until now: the yen and the yuan. The Bank of Japan’s Governor Kazuo Ueda released an interview where he said policymakers may have enough information by year-end – if wage inflation continues – to make a decision on unwinding some monetary stimulus. The market reaction to this has been significant. The overbought USD/JPY is falling and testing 146.00, and the benchmark JGB yields are at 0.70% despite the BoJ deploying the loans-for-bonds programme to curb yields. The timing of Ueda’s interview may suggest an intent to support JPY without deploying intervention – which wouldn’t be warranted by an excessively concerning rate of JPY depreciation anyway. In China, authorities are back with strong defence measures for the renminbi. This follows a growing consensus later last week that the People's Bank of China was starting to tolerate further CNY depreciation as USD/CNY had rallied past 7.30. Alongside a significantly stronger CNY fixing, the PBoC issued a statement saying market participants should “voluntarily maintain a stable market” and avoid speculative trades. The general softening in USD momentum this morning has helped take USD/CNY back below 7.30. This morning’s change of direction in dollar dynamics has clearly been fuelled by moves from the BoJ and PBoC, but whether USD/JPY and USD/CNY can stay under pressure relies on the dollar’s reaction to its own domestic drivers. This will be a busy week in US data, and the latest releases have tended to be quite supportive for the greenback. The main highlight of the week in the US calendar is the CPI report on Wednesday, which is widely expected to show an August inflation rebound, and our economics team flags upside risks to consensus expectations. The core CPI print is expected at 0.3% month-on-month, an acceleration from the 0.2% MoM seen in recent months. There are no data releases to watch today, but we'll see the NFIB survey, retail sales and industrial production figures in the US later this week. The FOMC has already entered the pre-meeting blackout period, but the latest indications clearly pointed to a pause in September. Can inflation change policymakers’ minds? It would probably need to be a materially stronger than expected print, but from an FX perspective, expect the bullish pass-through to the dollar to be felt anyway. Markets can still add to the 11bp of tightening by year-end and push rate cut expectations further down the road. The two-year USD swap rate (OIS) may retest the 4.94% August highs and offset the efforts by the PBoC (likely to be a continuous one) and the BoJ (more likely a one-off move by Ueda) to lift their domestic currencies.

ECB may be a lifeline not a trampoline for EUR/USD September’s ECB meeting will be a binary risk event for the euro. Our baseline scenario sees a rate hike, which would translate into a stronger euro in the aftermath of the announcement, as market pricing is leaning in favour of a hold. But with EUR/USD having been on a steady bearish path since the 1.12 July peak, the real question is whether a hike would invert the trend. The short answer is probably not, but there are some important considerations to make. First of all, it’s worth explaining why we think the FX impact of an ECB hike will be short-lived. One key reason is pricing: markets have doubted the ability of the ECB to hike this week (9bp priced in), but are still factoring in a total of 17bp of tightening to the peak by year-end. Arguably, the ECB hawks won’t have much interest in delivering one hike this week and striking a dovish tone, as the effective tightening via rates would be limited, so they should accompany a hike with openness to do more. However, with economic conditions deteriorating fast in the eurozone and dovish dissent within the ECB growing, it will be hard to convince markets to price in any additional tightening. When we look at the 2-year swap rate spread between the euro and the dollar, an important driver of currency fluctuations, we can tell that it has recently approached the -125bp support level (five central bank “lengths” between the Federal Reserve and ECB). Let’s remember that the swap rate tells us the expected average rate for the next two years, so includes expectations for the final moves in the tightening cycle (if any) and rate cuts. What has really driven the recent widening of the spread in favour of the dollar has not been any repricing higher in Fed rate hike expectations, but a downsizing of easing bets in the US for next year.   EUR/USD and short-term swap spread     With rate hike cycles coming to an end, swap rates are increasingly sensitive to expectations about the timing and pace of easing cycles. Those expectations are, however, far less controllable by central bank communication, and much more dependent on data. But can the ECB at least show signs of a united hawkish front and convincingly push back against rate cut speculation? (The first ECB cut is priced in for July 2024). If it can, then you have a trampoline for a sustainable EUR/USD rebound, otherwise – and we really think this will be the case – the best President Lagarde can do for the euro is to offer a lifeline. One way the ECB could, however, end up having a longer-lasting FX impact is via an acceleration in quantitative tightening. However, that obviously comes with non-negligible risks to peripheral spreads, and policymakers may want to tread quite carefully in that sense.   After the short-term impact, EUR/USD should revert to being driven primarily by the dollar leg, or in other words by Fed rate expectations and US data. We still expect a turn higher in the pair, but patience is the name of the game for EUR/USD bulls like us, and more downside corrections even after a potential ECB hawkish surprise are a very tangible risk.

Rates Spark: Slowly gearing up to the key events Markets are gearing up to this week’s main events. It is not just about this Thursday’s ECB meeting, but also about crucial data in the US and UK ahead of next week’s respective central bank meetings. Front-loaded issuance is helping to keep rates elevated, but we also expect hawkish risks to make a bearish case for rates this week.   Front end themes developing in a bear-steepening environment With central banks seen to be approachig their tightening cycle peaks it is only natural that the upcoming meetings are in the spotlight, kicking off with the ECB decison this Thursday.  With regards to central bank communications both the ECB and the Fed are in the pre-meeting black-out periods but we did hear from the BoE’s most hawkish member Catherine Mann yesterday, who noted that it was best to err on the side of further tightening. With regards to the market pricing of the BoE decision outcome, we have seen a notable shift towards the sense that the end of the tightening cycle is nearing. The implied probability for a hike next week had slipped below 80% at the end of last week – late last month the market was still more than fully pricing a 25bp hike.  The main focus in the US this week is still on data however, with the  August CPI release tomorrow. Our economist has flagged the risk of the month-on-month core inflation rate accelerating slightly. While that won’t move the needle for next week’s Fed decision, where a pause is widely anticipated, it would indicate hawkish risks to the broader Fed outlook. The market is attaching a 50% chance to another Fed hike by year-end.      Front loaded corporate issuance activity ahead of the events, especially in the US, is keeping upward pressure on rates. Markets will also have US Treasury supply in mind, where we saw a softer 3Y auction yesterday. The 10Y and 30Y reopenings follow today and tomorrow. It is a similar story in Europe, where we also saw the EU announcing a 7Y deal and – with greater market impact – the UK announcing a syndicated reopening of a 50Y Gilt which weighed on the long end of the curve.     10Y yields are again approaching the upper end of recent ranges

05:40BST Tuesday 26th September 2023 Asia weakness set to see lower European open By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets got off to a poor start to the week yesterday as concerns around sticky inflation, and low growth (stagflation), or recession served to push yields higher, pushing the DAX to its lowest levels since late March, pushing both it and the CAC 40 below the important technical level of the 200-day SMA. Recent economic data is already flashing warning signs over possible stagnation, especially in Europe while US data is proving to be more resilient.   Worries over the property sector in China didn't help sentiment yesterday after it emerged Chinese property group Evergrande said it was struggling to organise a process to restructure its debt, prompting weakness in basic resources. The increase in yields manifested itself in German and French 10-year yields, both of which rose to their highest levels in 12 years, with the DAX feeling the pressure along with the CAC 40, while the FTSE100 slipped to a one week low.   US markets initially opened lower in the face of a similar rise in yields with the S&P500 opening at a 3-month low, as US 10-year yields continued to push to fresh 16-year highs above 4.5%. These initial losses didn't last as US stocks closed higher for the first time in 5 days. The US dollar also made new highs for the year, rising to its best level since 30th November last year as traders bet that the Federal Reserve will keep rates higher for much longer than its counterparts due to the greater resilience of the US economy. The focus this week is on the latest inflation figures from Australia, as well as the core PCE Deflator from the US, as well as the latest flash CPI numbers for September from France, Germany, Spain as well as the wider EU flash number which is due on Friday. This could show the ECB erred a couple of weeks ago when it tightened the rate hike screw further to a record high.   On the data front today the focus will be on US consumer confidence for September, after the sharp fall from July's 117.00 to August's 106.10. Expectations are for a more modest slowdown to 105.50 on the back of the continued rise in gasoline prices which has taken place since the June lows. The late rebound in US markets doesn't look set to translate into today's European open with Asia markets also sliding back on the same combination of stagflation concerns and reports that Chinese property company Evergrande missed a debt payment.   Another warning from ratings agency Moody's about the impact of another government shutdown on the US economy, and its credit rating, didn't help the overall mood, while Minneapolis Fed President Neel Kashkari said he expects another Fed rate rise before the end of the year helping to further boost the US dollar as well as yields.     EUR/USD – slid below the 1.0600 level yesterday potentially opening the prospect of further losses towards the March lows at 1.0515. Currently have resistance at 1.0740, which we need to get above to stabilise and minimise the risk of further weakness.      GBP/USD – slipped to the 1.2190 area, and has since rebounded, however the bias remains for a retest of the 1.2000 area. Only a move back above the 1.2430 area and 200-day SMA stabilises and argues for a return to the 1.2600 area.       EUR/GBP – currently have resistance at the 200-day SMA at 0.8720, which is capping the upside. A break here targets the 0.8800 area, however while below the bias remains for a pullback. If we slip below the 0.8660 area, we could see a move back to the 0.8620 area.     USD/JPY – has continued to climb higher towards the 150.00 area with support currently at the lows last week at 147.20/30. Major support currently at the 146.00 area.     FTSE100 is expected to open at 7,624     DAX is expected to open at 15,405     CAC40 is expected to open at 7,124  

EUR: Resistance holds In the end, EUR/USD did not even get to test resistance at 1.0765 before falling back. 1.0650 seems the risk today given the event risk of hawkish Fed speakers. Locally, the focus will be on the eurozone PPI figures, another set of weak German industrial production figures and some European Central Bank speakers later in the day. As we have been saying recently, the euro story looks weak and EUR/USD will only rally if the US story is weak enough to trigger some clear bullish flattening of the US yield curve. That scenario looks premature. The baseline may be some kind of 1.0550-1.0750 range now unless the US data takes a decided turn for the worse. Elsewhere, the Scandi FX story has been interesting. The Swedish krona understandably did well in the lower rate, risk-on environment. The Norwegian krone performance has been very underwhelming and warns that EUR/NOK could be banging on the door at 12.00 again if US rates move higher again. Here, look out for event risks from US Treasury auctions this week. Three, ten and thirty-year Treasuries are auctioned today through Thursday.

Asia Morning Bites High-level communication to resume between the US and China as Biden hails meetings with Xi as making "real progress". Taiwan's main opposition parties are reported to be combining forces for the upcoming Presidential Election.   Global Macro and Markets Global markets:   A mixed run of US data yesterday resulted in Treasury yields pushing higher again. 2Y yields rose 7.6bp to 4.912%, while yields on 10Y US Treasuries rose 8.4bp taking them back above the 4.50% level to 4.531%. EURUSD has dropped slightly following this yield reversal but remains at 1.0849 for now. The AUD is reasonably stable at just over 0.65, but the GBP and JPY have both lost more ground. USDJPY is now 151.29. Most of the Asian FX pack made decent gains yesterday, but will probably revert to a weakening bias today. US stocks made only very small gains yesterday. Chinese stocks did far better. The Hang Seng rose 3.92% while the CSI 300 rose 0.7% on the slight improvement in activity data. On the political front, a resumption of high-level dialogue as President Biden hails talks with President Xi as making “real progress”, is probably the main win from the Pre-APEC session. Elsewhere, the Financial Times reports that the two main opposition parties in Taiwan will join forces against the DPP for January’s Presidential elections. It remains to be seen which party’s candidate will stand for the Presidential role. This, it is reported, will be determined by a third-party analysis of how the parties are polling. These parties are viewed as being more open to dialogue with Mainland China, so they could usher in a less tense election period than has historically been the case. G-7 macro: Yesterday’s US data stuck with the theme of price pressures waning, but activity remaining more resilient (see here for a more detailed note from JK). PPI inflation dropped to 1.3% YoY following a 0.5% MoM decline, and core PPI inflation also slowed to 2.4% YoY from 2.7%. Retail sales, however, were expected to fall 0.3% MoM in October, but only fell 0.1%. The control group of sales which strips out volatile items, rose 0.2%MoM – in line with expectations. UK inflation released yesterday showed a larger-than-expected fall. The CPI inflation rate tumbled to 4.6% from 6.7%. The news flow today won’t be quite as interesting. US export and import price data is rarely a market mover. Although we do also get industrial production, which is forecast to decline by 0.4% MoM, as well as the Philly Fed business survey and usual weekly jobs figures. Japan:  Exports for October rose 1.6%YoY – beating the forecast 1.0% gain, while imports were also a little less negative than expected at -12.5% YoY, though not enough to dent the trade balance. In adjusted terms, the deficit shrank to -JPY462bn. Alongside the trade figures, core machine orders data for September showed a decent 1.4% increase, beating expectations, though still leaving the annual rate down 2.2% YoY Australia: October employment was fairly strong. The total employment change from the previous month was +55,000, up from +7,800 in September. Most of the gain was due to a 37,900 rise in part-time jobs, so the total figure flatters the positive impact this will have on domestic demand. Full-time employment rose 17,000. There was a much bigger than usual increase in unemployment, which helped lift the unemployment rate to 3.7% from 3.6%.   Philippines:  The Bangko Sentral ng Pilipinas (BSP) is expected to keep rates unchanged today at 6.5%.  BSP hiked policy rates by 25bp two weeks ago in an off-cycle move so they are expected to hold today.  BSP Governor Remolona however could retain his hawkish rhetoric should inflation projections for 2024 point to another year of above-target inflation.    What to look out for: Australia jobs data and BSP meeting Japan trade balance (16 November) Australia labour report (16 November) Philippines BSP policy (16 November) US initial jobless claims and industrial production (16 November) Singapore NODX (17 November)

FX Daily: Don’t chase the dollar bear trend At the start of a quiet week for data, the dollar is hovering near recent lows. However, we do not think this is yet the start of the big, cyclical turn lower in the dollar we expect for next year. Instead, falling volatility and firm short-dated US yields can probably see the dollar hold onto current levels. Highlights this week include OPEC+ and key speakers. USD: Too soon The DXY dollar index is down around 3.5% from its highs seen in October. The drop looks largely down to the view that the Federal Reserve's tightening cycle is over and that portfolio capital can now be put back to work in bonds, equities, and emerging markets. While acknowledging that November and December are seasonally soft months for the dollar, our view is that this dollar sell-off has come a little early. We are bearish on the dollar through 2024 but expect the core driver to be a bullish steepening of the US Treasury curve – which has not happened yet. Indeed, US two-year Treasury yields remain firm near 5%. We thus urge caution in chasing this dollar decline much further. In terms of what this week has to offer, we pick out three themes: the Fed, OPEC+ and US data. Fed communication this week will come from the release of the Fed's Beige book and also some key speakers, including Fed Chair Jay Powell, on Friday. Remember that the Beige Book paints a picture of the economy to prepare the FOMC for its meeting on 13 December. It certainly is not clear that the Beige Book will paint a soft enough picture to support the 80bp of fed easing already priced for next year.  In terms of the OPEC+ meeting, our commodities team believe that the Saudis will extend their voluntary supply cut and that the oil market can find some support - a mild dollar positive. In terms of US data, the highlight should be some stable (0.2% MoM) core PCE inflation data for October and the ISM Manufacturing data on Friday.  Thursday's US inflation data is probably the largest bearish risk to the dollar this week. However, with cross-market volatility falling, it seems investors are once again interested in carry trade strategies. We have seen this theme several times this year already, and it is not a dollar negative. It is a negative for the funding currencies like the Japanese yen and the Chinese renminbi. Until we get some clear dovish communication from the Fed or US data is materially weak enough, we think this dollar drop might have come far enough for the time being and suspect that the 103.00/103.50 support area could well hold the DXY this week.

FX Daily: Euro remains the weakest link The dollar starts the week in mixed fashion. USD/JPY is trading at a new corrective low, while EUR/USD continues to lick its wounds after a torrid session on Friday. The highlight of this week's data calendar will be the November US jobs report on Friday; there are also central bank policy meetings in Canada and Poland USD: Powell speech provides some support The dollar turned a little higher on Friday - largely led by the drop in European currencies after investors latched onto some dovish comments from ECB officials. Also supporting the dollar later in the day, however, were comments from Fed Chair, Jay Powell.  He was much more equivocal than his colleague, Christopher Waller, who earlier in the week had signalled that the inflation battle was nearly won. Indeed, Powell's comments left in the prospects of further rate hikes - which very few in the market believe will materialise.  Against this backdrop will the dollar trade on US data this week. Given the blackout period ahead of the FOMC meeting on December 13th, there will be no Fed speakers this week. Instead, the focus will be on some quite important data. Beyond today's Durable Goods Orders, tomorrow sees the release of US services ISM and the JOLTS job opening data. Do job openings correct back lower and suggest a better balance in the US labour market - a mild dollar negative? Wednesday then sees the discredited ADP jobs data ahead of Thursday's initial claims. But the main event of the week is the November NFP report on Friday. Consensus expects a modest +180k, an unchanged unemployment rate and steady average earnings. Given a propensity for investors to put money to work outside of the dollar, we think a consensus outcome would be a mild dollar negative. We think it would really have to be a strong number to put the idea of another Fed rate hike back on the table. We favour DXY trading a 103-104 range through the week and suspect that investors will have a bias to sell in the 104.00/104.20 area.

CAD: BoC may prefer a hawkish hold today The Bank of Canada announces monetary policy today, and there is a strong consensus that rates will be kept unchanged. The big question from a market perspective is to what extent the BoC will acknowledge the deterioration in the economic outlook and scale back its threat of another rate hike. As discussed in our BoC preview, the recent commentary has turned more dovish, and third-quarter growth figures were very weak. That said, last week's jobs figures in Canada came in on the strong side, likely keeping fears of a passthrough of a still-tight labour market to inflation alive at the BoC. We think jobs data and the desire to push back against rate cuts will convince the BoC to retain a hawkish bias today. Considering the market is pricing around 100bp of easing next year in Canada, there is some room for a hawkish review of expectations and some support for the loonie. That said, CAD’s strong correlation with US data means that external factors will remain the key driver.

Bank of Canada retains its hawkish bias The BoC kept rates unchanged as expected, but had to recognise that rates are “clearly restraining spending” and that disinflation is happening at a faster pace. However, that was not enough to drop the threat of another hike if necessary. While this is generally good news for CAD, external factors (US data in particular) remain much more relevant.   Sticking to the tightening threat The Bank of Canada kept rates unchanged at 5.0% today, as widely expected. The policy statement noted that “higher interest rates are clearly restraining spending: consumption growth in the last two quarters was close to zero, and business investment has been volatile but essentially flat over the past year”. Incidentally, the BoC recognised the faster pace on the disinflation front, dropping the reference to “slow” progress on inflation. Those considerations would have likely led to a more dovish tone on the policy outlook as a consequence, but the BoC decided to reiterate the threat of more monetary policy tightening instead: “Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed”. The concerns about the inflation outlook come not only from potential external shocks (e.g. energy prices), but also from a resiliently tight domestic labour market, as confirmed by last week’s strong jobs figures. We are still convinced that the BoC will not tighten policy further given the deterioration of the economic outlook and our expectations for a steady decline in Canadian’s inflation. However, there is a likely intent to fight the ongoing dovish repricing of rate expectations in Canada, and that means the BoC out-of-meeting commentary may be careful to send dovish messages to the market before the January meeting, when new economic projections will be released.   CAD still too reliant on US data From a market perspective, the reiteration of the hawkish bias by the Bank of Canada is positive news for CAD, although the acknowledgement of faster inflation decline and the strong impact of tight monetary conditions on the economy have offset the impact on the loonie, which is holding steady after the announcement. Despite the BoC’s reluctance to pivot to a more dovish stance, the loonie remains highly affected from a deterioration in US data, to which it has the highest correlation in G10. In the short term, the last bits of evidence of US activity resilience may support CAD – especially in the crosses – but we expect the worsening of US (as well as Canadian) growth sentiment next year to make CAD less appealing than other risk-sensitive currencies like the antipodeans and Scandies.

FX Daily: One last big central bank meeting The dollar is recovering some ground after the pushback from Fed officials against rate cut bets. However, the dovish Dot Plot may work as an anchor for rates and keep the dollar soft into the end of December. In Japan, the BoJ announces its policy in the early hours of tomorrow, and that will direct market expectations about a January hike.   USD: Softer into year-end? The last few days of market action, before volumes dry up for Christmas, should continue to revolve around the “tug of war” between Fed officials trying to temper rate cut speculation and investors who have instead seen a validation of dovish bets from last week’s Dot Plot projections. Data can tip the scale in these situations, so consumer confidence, personal spending, and PCE figures should move the market this week. We don’t expect the last bits of US data in 2023 to paint a very different picture, though. Ultimately, the Dot Plot surprise should keep providing an anchor for rates into the new year and prevent a major dollar rebound in a period that is also seasonally unfavourable for the greenback. It will, however, be important to see how much louder the post-meeting pushback against rate cut bets by Fed officials will be. We’ll hear from Chicago Fed President Austan Goolsbee today and Raphael Bostic tomorrow, but with Christmas getting closer, there will obviously be fewer chances to collect FOMC members’ remarks. Today, the US calendar is otherwise quiet, and the FX market will primarily focus on the Bank of Japan announcement overnight (more in the JPY section). We expect DXY to stabilise around 102/103 into year-end, but risks are skewed to the downside.

FX Daily: Cautious BoJ hits the yen The Bank of Japan did not give in to market pressure and kept its dovish guidance intact. However, the wording on the economic and inflation outlook paves the way for a hike in the second quarter in our view. The yen should revert to being driven mostly by US rates after taking a hit today. Elsewhere, Fedspeak will remain in focus along with some US data.   USD: Mixed Fedspeak The dollar has started the week modestly offered, with Scandinavian currencies performing well and the yen dropping after this morning’s Bank of Japan announcement (more in the JPY section below). The US calendar was empty yesterday, so the spotlight was on Fedspeak. Loretta Mester said that the markets are “a little bit ahead” on rate cuts, and Mary Daly said that her outlook for rate cuts is very close to the median Dot Plot (75bp of easing next year). Interestingly, Daly said that policy would still be restrictive if three cuts were delivered next year, which would probably imply greater room for easing if the economic outlook deteriorates. Chicago Fed President Austan Goolsbee said he is confused by the market reaction to the Dot Plot, but remarks from Daly and Mester instead seemed to endorse investors’ bullish response. We’ll keep monitoring Fed speakers today, with Thomas Barkin and Raphael Bostic (the latter swings more to the dovish side) set to deliver remarks. However, the focus will also be on US data, with housing starts set to have declined along with building permits in November. October TIC data is also due today. Tomorrow’s consumer confidence and Friday’s PCE and personal income numbers will be the last bits of data that can move the market before Christmas. Today, FX markets may stay quiet, and the general mood on the dollar could be modestly bearish unless we hear some more convincing pushback on rate cuts by Fed offici

FX Daily: Waiting on central bankers to shake data-resistant markets Investors have cemented Fed easing expectations despite some hotter-than-expected US data. We suspect a market reluctant to price out rate cuts will need strong words from the Fed – perhaps Powell himself – to reconnect rate expectations with data. Meanwhile, USD may stay rangebound. This week, Lagarde will speak in Davos, and UK CPI should slow further.   USD: Rate expectations still disjointed from data The first half of January has shown a dislocation between rate expectations and data in the US. The two most important data points for the Federal Reserve, labour and CPI inflation figures, both came in hotter than expected. PPI was a bit softer than consensus on Friday, but that is not enough to justify markets’ reluctance to price out Fed easing. The Fed funds future curve prices in 21bp of cuts in March, and 168bp by year-end. Our view remains that the Fed won’t start cutting before May, and that the total easing package will be 150bp. Accordingly, the rally in short-term USD rates appears overdone, and weakness in the front part of the USD curve should support some recovery in the dollar. However, we suspect that the data may prove insufficient to trigger a USD rebound for now; the consensus view of a dollar decline later this year seems to be making investors keen to sell dollar rallies. Also, the Fed probably needs to send a clearer message that the latest data does not justify the kind of aggressively dovish view embedded in money market pricing. There are a few more Fed speakers lined up this week, but perhaps dollar bears will want to hear it from Fed Chief Jerome Powell, who is not scheduled to speak until the 31 January FOMC announcement. Incidentally, the US data calendar isn’t very busy this week. Retail sales and the University of Michigan inflation expectations will attract the most attention along with jobless claims - which came in well below expectations last week, reinforcing the narrative of a still-tight labour market. We think the dollar will be driven more by other events than data this week, barring major surprises. First, the results of the election in Taiwan have raised again the delicate question of Taipei-Beijing relationships, with tensions among the two seen as a major risk for Asian and global risk sentiment this year. The dollar might benefit from some outflows from exposed EM FX. The situation in the Gulf also looks rather volatile after the US and UK military operations last week, even though the impact on oil prices has been muted so far.   Domestically, we’ll monitor the market reaction to the business tax relief extension currently being discussed in the US Congress. The impact of fiscal support may turn out to be negative for risk sentiment – and positive for the dollar – as markets see a greater risk of sticky inflation and a lower chance of Fed rate cuts. We think the dollar is more at risk of a rebound than a further correction from these levels, although the chances of another rangebound trading week in FX (DXY still hovering in the 102/103 region) are high.